The rapid unfolding of the COVID-19 pandemic has created grave concerns for the health and welfare of the US population and the economy. The economic worries are very apparent in financial markets. From the closing bell on February 21 through March 20, US equities fell more than 30 percent, and stock market volatility skyrocketed.
At present, we simply don’t know the extent of the overall disruption to the economy. We are still months away from confidently gauging COVID-19’s impact on output growth. However, the latest wave of results from our Survey of Business Uncertainty (SBU) indicates that firms are bracing for a huge negative impact on their businesses. Our results also say the outlook deteriorated rapidly over the past two weeks.
The SBU was in the field from March 9 until March 20. Relative to February, firms’ four-quarter-ahead sales growth expectations fell sharply, from above 5 percent to below zero. This fall is, by far, the starkest one-month swing we’ve recorded since the inception of the SBU in October 2014. In addition, firms’ uncertainty about their own sales growth rates rose 44 percent from February to March.
Interestingly, SBU respondents did not report a material softening in the outlook for employment growth during the next 12 months, or in the capital investment rate four quarters hence. However, given the latest signals from the labor market—most notably, the March 19 unemployment claims report—employment is set to contract sharply for at least a few weeks. Perhaps respondent firms see the coronavirus impact as sharp but short-lived, with little impact on longer-term employment and plans for capital expenditure.