The many unknown factors surrounding COVID-19 make it difficult for any business to project exactly how it will affect their revenues. But Chicago Booth’s Steven J. Davis says business leaders surveyed in March predicted a severe drop in sales—a decline that only grew for those surveyed later in the month.
A big economic shock is one obvious product of COVID-19, but the virus will also change business in other ways, Davis suggests. The technologies and shopping platforms that have enabled social distancing will likely continue to play a newly significant role even after the outbreak has abated, while businesses that rely on travel and in-person interactions could be facing a prolonged dip in demand.
The impact of COVID-19 on businesses is a really important and interesting question. There’s lots to say there. Let me focus on a survey that my colleagues and I did earlier this month, designed to elicit information on exactly that question.
There’s a Survey of Business Uncertainty, as we style it, that is fielded by the Federal Reserve Bank of Atlanta. It’s co-branded with the University of Chicago Booth School of Business, and Stanford. I’m one of the co-creators, and so is Nick Bloom at Stanford. And the unique characteristic of this survey instrument is, it’s designed to elicit information, forward-looking information about what businesses see.
In March, over a two-week period around the beginning of the month, we explicitly asked several hundred businesses: “What do you anticipate will be the impact of coronavirus-related developments on your sales revenue in 2020?”
The activity-weighted average answer that came back was about minus 6 percent. So that’s a pretty big negative hit. But perhaps even more interestingly, from the first to the second week of the survey—and the first week was the week of March 9, and the second week was the week of March 16—the answers got a lot worse.
The answers in the second week were almost twice as bad as in the first week—so more like close to a 12 percent negative sales hit. Businesses themselves see a very bad hit to their sales revenue, to their operations, in 2020. And over the course of the time the survey was in the field, those expectations deteriorated quite a bit.
Even 6 percent is a really major, sharp recession. Twelve percent is unlike anything we’ve seen in modern times in terms of a contraction for a span of less than a single year. So that’s pretty bad.
Now of course, nobody really knows. Developments are changing day by day. We don’t yet know how long the pandemic will continue to accelerate. We really don’t know at this point just how infectious the virus is and how lethal it is, because we don’t really have good information on how many people have already had the disease and recovered from it.
And so, we’re still very much in the dark on the medical side, and that makes it very hard to assess the ultimate economic consequences.
The crisis is going to have some profound effects on the labor market. And you can already see some early waves of what that is.
There’s been a massive uptick in the demand for delivery services: home-delivery services, business-delivery services. Some of that will subside in the wake of the crisis, but not all of it. For one thing, there’s probably millions of more people who in the past month have figured out how to order food deliveries online. And once they’ve gotten over that hurdle, some of them will find they like it, and some of them will continue—either for the sake of convenience, or because there are lingering concerns about the health effects of going to a sit-down restaurant or going to a crowded grocery store. The shift toward online purchases coupled with onsite delivery, that’s going to be a massive shift that I don’t think will turn around.
We’re doing this interview via Zoom. I can tell you my calendar has filled up with Zoom meetings, as I’m sure many others’ have. So Zoom and other like technologies are also experiencing a massive boom. All of us are learning how to work with this technology. There is a learning curve; it’s not that steep, but you’ve got to work out the kinks, both personally and in terms of organizations. Once we’ve crossed that threshold, I think we’ll do a lot more video conferencing going forward.
That’s great for businesses like Zoom. What it does mean, though, is airline travel, for example, and hotel occupancy for business reasons, maybe for tourism reasons, they’re going to probably be down and soft even after we get over this crisis itself.
So those are just some examples.
I think we’ve learned, hopefully we’ve learned, that some of our investments in public-health infrastructure and supply chains for critical medical-care equipment—masks, ventilators, testing capacity, both the kits and the lab capacity—those are things that it looks like we probably want to up our investments in, not just in the near term, but over the longer term.
So there’s going to be many, many shifts of this sort. And that raises an interesting point for policy. We want policy to be conducted in a way that facilitates these shifts and encourages them, rather than slowing them down and discouraging them.