The Economic Impact of COVID on the US economy Bloom slides.pdf · Nottingham and Stanford...

The Economic Impact of COVID onthe US economy

Nick Bloom (Stanford)

SIEPR, May 2020

Warning – depressing economic forecasts. Take precautions

2

Key Points

3

1. Massive uncertainty - medical progress, policy response, industrial impact etc

2. Short-run - unemployment rising to about 20% and GDP down about 20% in 2020Q2

3. Long-run – likely U-shaped (very slow recovery) or W-shaped (double-dip)

4. Recovery headwinds – bankruptcies, skills erosion, trade, immigration, taxes, politics

I asked a friend who is a senior forecaster about his views:

“Since the beginning of March we basically quit trying – if youask me, it is a stupid exercise and the only reason anyonewould even attempt a forecast at any horizon is because theyare getting paid, have no shame, are drunk, or likely all three.”

My PhD was on uncertainty – these are incredible figures

5

Notes: Weekly US economic policy uncertainty index, monthly average data 1/2/1990 to 5/7/2020. This reports the normalized share of US daily newspaper articles discussing economic policy uncertainty. Source: https://fred.stlouisfed.org/series/USEPUINDXD

Notes: Weekly implied volatility on the S&P500 index from the Chicago Board of Options Exchange 1/2/1990 to 5/7/2020. This is the 1 month VIX (implied volatility over the next 30 days) in annualized units. Source: https://fred.stlouisfed.org/series/VIXCLS

S&P500 Implied Volatility (VIX) Economic Policy Uncertainty (EPU)

020

4060

80V

IX

1990 2000 2010 2020Year

020

040

060

0D

aily

US

Eco

nom

ic P

olic

y U

ncer

tain

ty In

dex

1990 1995 2000 2005 2010 2015 2020Year

https://fred.stlouisfed.org/series/USEPUINDXDhttps://fred.stlouisfed.org/series/VIXCLS

COVID now the largest source of uncertainty for 90% of firms

6

0102030405060708090100

6 March(29%)

7-11 March(20%)

12-16 March(30%)

17-20 March(20%)

3 April (29%) 4-8 April(15%)

9-15 April(28%)

16-17 April(28%)

Survey submission date

March survey April survey

Source: Decision Maker Panel Survey conducted by the Bank of England, Nottingham University and Stanford University, Details in Bloom, Bunn,Chen, Mizen, Smietanka and Thwaites (2019) and on www.decisionmakerpanel.com .

% U.K. firms reporting Covid-19 as their top source of uncertainty

3 April

http://www.decisionmakerpanel.com/

This uncertainty is leading firms to abandon earnings guidance

Source: https://www.wsj.com/articles/stocks-keep-rallying-despite-lack-of-visibility-on-economy-11588498201?mod=hp_lead_pos1

https://www.wsj.com/articles/stocks-keep-rallying-despite-lack-of-visibility-on-economy-11588498201?mod=hp_lead_pos1

Key Points

8





One way to see the damage is the share of daily lost GDP, which has risen to about 30%

9Source: https://www.wsj.com/articles/state-coronavirus-shutdowns-have-taken-29-of-u-s-economy-offline-11586079001

https://www.wsj.com/articles/state-coronavirus-shutdowns-have-taken-29-of-u-s-economy-offline-11586079001

Happened incredibly fast - went from February 2020, a 60 year low rate of unemployment, to April 2020, an 80 year high

10Source: Survey of Business Uncertainty (March 9-20 & April 13-24, 2020), (Atlanta Fed, Chicago University and Stanford University). Details in Altig, Barrero,Bloom, Davis, Meyer, Mihaylov and Parker (2020) and https://www.frbatlanta.org/blogs/macroblog

What is your best guess for the impact of coronavirus developments on your firm’s sales revenue in 2020?

https://www.frbatlanta.org/blogs/macroblog

COVID has a hugely varied impact on firms and industries

11Source: Stanford-Stripe survey of US 2,000 firms forecast for impact of COVID on 2020Q2 sales. Details in Bloom, Fletcher and Yeh (2020) and on (https://siepr.stanford.edu/research/projects/stanford-stripe-study-internet-entrepreneurship).

https://siepr.stanford.edu/research/projects/stanford-stripe-study-internet-entrepreneurship

Also variation across firms by founder types (driven by industry mix)

12Source: Stanford-Stripe survey of US 2,000 firms forecast for impact of COVID on 2020Q2 sales. Details in Bloom, Fletcher and Yeh (2020) and on (https://siepr.stanford.edu/research/projects/stanford-stripe-study-internet-entrepreneurship).

https://siepr.stanford.edu/research/projects/stanford-stripe-study-internet-entrepreneurship

COVID → “Frankenstein recession”: combines the size of the Great Depression, the speed of Katrina and the reallocation of WWII

13

Great Depression

COVID (so far)

Hurricane Katrina COVID (so far)

“The coronavirus pandemic is forcing the fastest reallocation of labor since World War II, with companies and governments mobilizing an army of idled workers into new activities that are urgently needed.” (Wall Street Journal, 3/29/2020

https://bfi.uchicago.edu/working-paper/covid-19-is-also-a-reallocation-shock/

https://bfi.uchicago.edu/working-paper/covid-19-is-also-a-reallocation-shock/

Hence, I am less optimistic than the market

14

Key Points

15





faster

16Source: https://www.wsj.com/articles/why-the-economic-recovery-will-be-more-of-a-swoosh-than-v-shaped-11589203608?mod=hp_lead_pos1

https://www.wsj.com/articles/why-the-economic-recovery-will-be-more-of-a-swoosh-than-v-shaped-11589203608?mod=hp_lead_pos1

Key Points

17





18

Taxes: another long run concern as they eventually will need to rise

PresenterPresentation NotesTotal US Government Debt is about $25tn. Of that about $22tn is federal debt, the remaining $3tn is about equally split between state and local debt.Of this debt around 75% is held by the public – mainly investors (domestic and foreign), banks, mutual funds etc. Fed holds about 11% although rising fast. Of the remaining 25% of debt mainly Social Security, Disability Insurance Trust Fund, Military Retirement Fund and other retirement funds�Total US GDP is about $22tn in 2019

Deficits from Great Depression and World War II led to sharp rises in income taxes that only came fully back down in the 1980s

19Source: Bradford Tax Institute https://bradfordtaxinstitute.com/Free_Resources/Federal-Income-Tax-Rates.aspx

PresenterPresentation NotesPlease use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email [email protected] to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found here. �https://www.ft.com/content/f2b79b3a-8ae5-11ea-9dcb-fe6871f4145a��Thomas Huray at Fulcrum estimates that the direct fiscal measures introduced in the advanced economies so far is equivalent to 6 per cent of 2019 nominal gross domestic product, roughly double the equivalent stimulus from 2008 in the financial crisis. Furthermore, JPMorgan estimates that the expansion in central bank balance sheets may exceed 18 per cent of GDP by 2021, about three times the scale in the financial shock.

https://bradfordtaxinstitute.com/Free_Resources/Federal-Income-Tax-Rates.aspx

20

Political extremism: 50% of Americans are facing real hardship, which risks political disasters (think 1930s politics)

21

I’m guessing you finished your drink…

The Promise of Working From Home Post COVID

Nick Bloom (Stanford)

SIEPR, May 2020

Working from home traditionally had a bad image (a 2017 search)

24

In 2012 I ran a randomized control trial of WFH on Ctrip, China’s largest travel agency ($15bn on NASDAQ, 40,000 employees)

PresenterPresentation NotesAverage age is 23, 68% are women, and all have high school but only 39% have tertiary education. Only 15% are married, 9% have children.

25

CTrip – inside like a typical US office

PresenterPresentation NotesAverage age is 23, 68% are women, and all have high school but only 39% have tertiary education. Only 15% are married, 9% have children.

The experiment was public: Chairman James Liang pulls the ball

PresenterPresentation NotesJames is a SIEPR advisory board member

27

Individuals randomized home (even birthdays)

Working at home

Working at home Working at home

Working at home

First, massive improvement in performance – 13% more output

-20-10

010

20

-20 -15 -10 -5 0 5 10 15 20 25 30 35

% Im

prov

emen

t in

perf

orm

ance

Weeks after the start of the experiment

29

Second, quit rates drop by 50%

05

1015

2025

3035

4045

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Home (♦)

Office (●)

Cum

ulat

ive

quit

rate

(per

cent

)


Third, choice doubled the impact – after the experiment the firm let all employees choose

-100

1020

3040

50

-20 -12 -4 4 12 20 28 36 44 52 60 68 76 84 92 100

% Im

prov

emen

t in

perf

orm

ance During the

experimentCompanyroll-out

Before theexperiment


CTrip increased profits by $2,000 per employee working from home, and actively rolled this out

PresenterPresentation NotesOutput up by 12% as we find, labor (as measured in a Census) would be constant as shift length not changes (in reality workers may work more but less comute so labor time including commute probably less) and capital would fall (as need less office space while equipment about flat). While call centers are not used for standard TFP analysis it is clear any type of productivity measure of this would tend to rise if WFH was rolled-out.

Firms with more employees WFH are now less negative on COVID

Source: Decision Maker Panel Survey conducted by the Bank of England, Nottingham University and Stanford University and Bloom, Bunn, Chen,Mizen, Smietanka and Thwaites (2019) and www.decisionmakerpanel.com

-80

-60

-40

-20

0Ex

pect

ed im

pact

of C

ovid

-19

on s

ales

in Q

2 (%

)

Percentage of employees working from home0-9 10-19 20-29 30-39 40-49 50-59 60-69 70-79 80-89 90-100

http://www.decisionmakerpanel.com/

But working from home under COVID is hard for four reasons

1) Kids

2) Job match – only a third of jobs can (and are) working from home

0102030405060708090100

Accom & FoodRecreational ServicesConstructionWholesale & RetailManufacturingTransport & StorageReal EstateAdmin & SupportOther ServicesProf & ScientificHealthFinance & InsuranceOther ProductionInfo & Comms

All firms

Furloughed

Unable to work (egsick, self isolating)

Working onbusiness premises

Working from home

Percentage of employees

Source: Headline: How many jobs can be done at home” Dingel and Nieman (2020), Covid Journal of Economicshttps://cepr.org/sites/default/files/news/CovidEcon1%20final.pdf, Graph: Decision Maker Panel Survey conducted by the Bank of England,Nottingham and Stanford Universities, and Bloom, Bunn, Chen, Mizen, Smietanka and Thwaites (2019) and www.decisionmakerpanel.com

https://cepr.org/sites/default/files/news/CovidEcon1%20final.pdfhttp://www.decisionmakerpanel.com/

3) Space

If you have any photos to share of WFH challenges please send them to me at [email protected] thanks

mailto:[email protected]

85.3

8.12.6 1.9 2.1

020

4060

80m

ean

of s

hare

Nev

er

Occ

asio

nally

(e.g

. mon

thly

)

1 to

2 d

ays

per w

eek

3 to

4 d

ays

per w

eek

5+ d

ays

per w

eek

4) Full-time – pre-COVID only 2% of people were full time

Source: BLS data https://www.bls.gov/news.release/flex2.htm

Why? Office time important for1) Creativity2) Motivation3) Loyalty

https://www.bls.gov/news.release/flex2.htm

Three key tips of WFH post COVID

1) Part-time – regular 2 days per week at home (e.g. T,Th)

2) Optional – only about 50% of employees want to WFH

3) Privilege – under-performers warned, recalled to the office

PresenterPresentation NotesSource: “How many jobs can be done at home” Jonathan Dingel and Brent Nieman (2020), Covid Journal of Economics https://cepr.org/sites/default/files/news/CovidEcon1%20final.pdf

COVID will shrink the modern office, not eliminate it

Pre-COVID 5% of working days from home

During COVID 35% of working days at home

Post COVID I predict about 15% to 20% of working days at home

PresenterPresentation NotesSource: “How many jobs can be done at home” Jonathan Dingel and Brent Nieman (2020), Covid Journal of Economics https://cepr.org/sites/default/files/news/CovidEcon1%20final.pdf

Further Reading References

40

COVID related blogs:“COVID induced economic uncertainty”, Scott Baker, Nicholas Bloom, Steve Davis and Stephen Terry, April 2020, https://nbloom.people.stanford.edu/sites/g/files/sbiybj4746/f/covid-induced_economic_uncertainty_4_april_2020.pdf

“The productivity pitfalls of working from home in the age of COVID-19”, Nick Bloom, March 2020https://news.stanford.edu/2020/03/30/productivity-pitfalls-working-home-age-covid-19/

“The bright future of working from home”, Nick Bloom, May 2020https://siepr.stanford.edu/research/publications/bright-future-working-home

“COVID is also a reallocation shock” Jose Barrero, Nicholas Bloom and Steve Davis, May 2020https://bfi.uchicago.edu/working-paper/covid-19-is-also-a-reallocation-shock/

Background:Recent background of slowing US productivity growthhttps://blogs.wsj.com/cio/2018/07/13/in-an-era-of-tech-innovation-whispers-of-declining-research-productivity/

Three Surveys feeding into this briefingwww.decisionmakerpanel.comhttps://www.frbatlanta.org/research/surveys/business-uncertaintyhttps://siepr.stanford.edu/research/projects/stanford-stripe-study-internet-entrepreneurship

Three uncertainty databaseswww.economicuncertainty.comwww.worlduncertaintyindex.comwww.stockmarketjumps.com

https://nbloom.people.stanford.edu/sites/g/files/sbiybj4746/f/covid-induced_economic_uncertainty_4_april_2020.pdfhttps://news.stanford.edu/2020/03/30/productivity-pitfalls-working-home-age-covid-19/https://siepr.stanford.edu/research/publications/bright-future-working-homehttps://bfi.uchicago.edu/working-paper/covid-19-is-also-a-reallocation-shock/https://blogs.wsj.com/cio/2018/07/13/in-an-era-of-tech-innovation-whispers-of-declining-research-productivity/http://www.decisionmakerpanel.com/https://www.frbatlanta.org/research/surveys/business-uncertaintyhttps://siepr.stanford.edu/research/projects/stanford-stripe-study-internet-entrepreneurshiphttp://www.economicuncertainty.com/http://www.worlduncertaintyindex.com/http://www.stockmarketjumps.com/

The Economic Impact of COVID on�the US economy��Nick Bloom (Stanford)��SIEPR, May 2020Warning – depressing economic forecasts. Take precautionsKey PointsSlide Number 4My PhD was on uncertainty – these are incredible figuresCOVID now the largest source of uncertainty for 90% of firmsThis uncertainty is leading firms to abandon earnings guidanceKey PointsOne way to see the damage is the share of daily lost GDP, which has risen to about 30%Happened incredibly fast - went from February 2020, a 60 year low rate of unemployment, to April 2020, an 80 year highCOVID has a hugely varied impact on firms and industriesAlso variation across firms by founder types (driven by industry mix)COVID → “Frankenstein recession”: combines the size of the Great Depression, the speed of Katrina and the reallocation of WWIIHence, I am less optimistic than the marketKey PointsSlide Number 16Key PointsSlide Number 18Deficits from Great Depression and World War II led to sharp rises in income taxes that only came fully back down in the 1980sSlide Number 20Slide Number 21The Promise of Working From Home Post COVID��Nick Bloom (Stanford)��SIEPR, May 2020Working from home traditionally had a bad image (a 2017 search)In 2012 I ran a randomized control trial of WFH on Ctrip, China’s largest travel agency ($15bn on NASDAQ, 40,000 employees)CTrip – inside like a typical US officeThe experiment was public: Chairman James Liang pulls the ballSlide Number 27First, massive improvement in performance – 13% more outputSecond, quit rates drop by 50%Third, choice doubled the impact – after the experiment the firm let all employees chooseCTrip increased profits by $2,000 per employee working from home, and actively rolled this outFirms with more employees WFH are now less negative on COVIDBut working from home under COVID is hard for four reasons1) Kids2) Job match – only a third of jobs can (and are) working from home3) Space4) Full-time – pre-COVID only 2% of people were full timeThree key tips of WFH post COVID��1) Part-time – regular 2 days per week at home (e.g. T,Th)��2) Optional – only about 50% of employees want to WFH��3) Privilege – under-performers warned, recalled to the office��COVID will shrink the modern office, not eliminate it��Pre-COVID 5% of working days from home��During COVID 35% of working days at home ��Post COVID I predict about 15% to 20% of working days at home��Further Reading References

The Economic Impact of COVID on the US economy Bloom slides.pdf · Nottingham and Stanford...

Documents

Transcript of The Economic Impact of COVID on the US economy Bloom slides.pdf · Nottingham and Stanford...