How Is Coronavirus Shaping Economic Expectations? A New Survey Offers Initial Results

These are still early days for understanding the coronavirus (COVID-19) that’s threatening our health and roiling the global economy, but the first draft of analysis is starting to roll in. Among the first reviews is a new working paper that assesses how COVID-19 is influencing macroeconomic expectations.

The crisis will reorder many facets of how the world thinks about markets and macro and quite a lot of the attitude adjustment will likely fall under the general topic of behavioral factors. As an initial inquiry into what will inevitably become a large and distinct body of research – file it under coronavirus blowback —  Carola Binder, assistant professor of economics at Haverford College, dips her analytical toes into the subject. The focus is modest but informative: surveying U.S. consumers and how their expectations on inflation and unemployment changed following the emergency interest rate cut by the Federal Reserve on March 3.

“Consumers are, in general, attentive to and concerned about the coronavirus,” she reports in “Coronavirus Fears and Macroeconomic Expectations.” The March 5-6, 2020 survey found that “28% have cancelled or postponed travel and 40% purchased food or supplies in response to these concerns.”

These numbers have likely increased in the days since Binder conducted the survey—this writer, for example, recently visited a local supermarket and the shelves of many staples – pasta, canned goods, soap, etc. – were wiped clean.

She also reports that “greater concern about coronavirus is associated with higher inflation expectations and more pessimistic unemployment expectations.” The finding is “consistent with recent research showing that many consumers equate ‘bad times’ with ‘high inflation.’”

It’s also notable that 50% of respondents said they were following the news about the coronavirus “somewhat closely” and 43% “very closely.”

Concerns about economic effects are most prevalent, with 52% somewhat concerned and 38% highly concerned. Consumers who follow the news about the coronavirus more closely tend to be more concerned about the effects of the virus.

The share of people monitoring coronavirus news and focusing on the economic impact has surely increased since the survey was conducted. Indeed, fears and anxiety in the U.S. have ramped up substantially in the second week of March. The fact that a relatively high share of consumers were attentive on the topic is a reminder that economic issues are never far from the public’s collective mind.

Perhaps the most interesting results show how the female vs. male results break out. “Female [survey] respondents are more likely to follow coronavirus news, to be concerned about economic and personal financial effects, and to have made purchases in response to concerns.”

Other key factors that appear to influence perceptions of the coronavirus threat include the level of personal wealth and whether a person has an investment portfolio.

Respondents who own stocks or follow news about the stock market seem more attentive to coronavirus news, more concerned, and more likely to have responded. High income respondents show less concern about their personal finances and are less likely to have cancelled travel.

The source of news and the opinion of the government’s economic policies are influential factors, too, reports Binder. Surprisingly, her survey data shows that “neither confidence in the Fed nor confidence in President Trump predicts concern about coronavirus effects.”

Overall, the poll suggests that concerns about the coronavirus are associated with a relatively greater pessimistic outlook on unemployment and higher inflation expectations. As a result, “policymakers might observe survey measures of consumer inflation expectations rising in the coming months if concerns about the coronavirus grow,” the paper concludes. “My results suggest that such an increase in inflation expectations should be interpreted as an increase in pessimism, rather than as improved expectations of aggregate demand.”