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Policy Hub: Macroblog provides concise commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues for a broad audience.

Authors for Policy Hub: Macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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April 7, 2021

CFOs Growing More Optimistic, See Only Modest Boost from Stimulus Plan

During the past few months, alongside an increase in COVID-19 vaccinations and amid a fresh round of fiscal support, optimism about the economic recovery from the COVID-19 pandemic has grown. Although reasons for concern over the potential unevenness of the recovery still exist, many economistsOff-site link, policymakers Adobe PDF file formatOff-site link, and market participantsOff-site link have ratcheted up their growth expectations for 2021.

This growing optimism extends to decision makers who participate in The CFO SurveyOff-site link—a collaborative effort among the Atlanta Fed, Duke University's Fuqua School, and the Richmond Fed. CFOs and other financial decision makers in our survey grew more optimistic about the U.S. economy and their own firms' financial prospects, according to the first quarter's data released on April 7. Moreover, these firms see stronger prospects for sales revenue and employment growth in 2021 (similar to results from other business surveys, including the Atlanta Fed's Survey of Business Uncertainty).

Many people think the recently passed $1.9 trillion American Rescue Plan ActOff-site link (ARPA) is behind these brighter expectations. However, the results of our CFO Survey suggest that many firms anticipate that the fiscal stimulus will have only a modest impact on their own future business activity.

In the first-quarter CFO Survey (fielded March 15–26, 2021), we posed a question asking respondents about the impact that ARPA might have their own firm's revenue growth, number of employees, representative price (the price of the product, product line, or service that accounts for the majority of their revenue), and total wage and salary costs (see chart 1). Firms had five response options, ranging from "decrease significantly" to "increase significantly." A majority of firms expect the recent fiscal measure to have "little to no impact" across all areas of their business activity. The results are perhaps most striking for employment, as nearly 80 percent of firms anticipate ARPA to bring little to no change in that area.

Chart 1 of 1: Anticipated Impact of Recent Fiscal Stimulus

Considering the tepid impact of the stimulus on employment expectations, the survey results for total wage and salary costs are also interesting. Here, nearly 30 percent of the panel anticipates modest to moderate upward pressure on wage and salary costs, with another 5 percent or so expecting "significant" impact on their wage bill. The reasons for the expected effect on firms' total wage and salary costs are unclear, but we should note that labor quality and availability remain very high on CFOs' list of most pressing concerns.

Expectations around ARPA's impact on revenue growth appear a bit more diffuse. Though the survey's typical (or median) firm still anticipates that the bill will bring little to no change in sales revenue growth, nearly 40 percent of respondents expect the legislation to have a positive impact on sales, and a very small share of firms anticipate a negative impact on revenue.

Given the nature of these responses, we were curious whether CFOs who anticipated a positive impact from ARPA also held higher quantitative expectations for firm-level growth than firms who saw little-to-no impact. t. The CFO Survey elicits firms' quantitative expectations for sales revenue, employment, price, and wage growth early in the questionnaire, providing a useful way to check for consistency. Table 1 reports these results.

Table 1 of 1: Average Expectations for 2021 by Anticipated Stimulus Impact

Apart from firms' anticipated growth in wage and salary costs, it does appear that firms that foresee a boost from the fiscal stimulus also hold higher growth expectations. The increase in expectations is particularly stark for employment growth and prices.

If we dig a little deeper into the small share of firms anticipating increased employment due to the stimulus—45 total—we find that 40 of them are in service-providing industries and employ fewer than 500 workers. We know from academic researchOff-site link, government statisticsOff-site link, and anecdotal reportsOff-site link that the COVID-19 pandemic has hit smaller, service-providing firms particularly hard, so it's perhaps not surprising to see these types of firms expecting the stimulus to aid in a rebound. These firms are also anticipating a stimulus-induced boost to the prices they can charge. The price growth for services has slowed markedly since the onset of the pandemic. As the economy begins to open up more fullyOff-site link, these firms might believe that measures to bolster household income (among other aspects of ARPAOff-site link) will lead to a bit more pricing power.

Overall, however, our results suggest that the majority of firms anticipate ARPA to have little to no impact on their sales revenue, employment, prices, and wages. The smaller share of firms that do anticipate increased activity resulting from the stimulus largely expect the increase to be modest to moderate.

Importantly, these results do not rule out a surge in growth as the pandemic recedes and the vaccination rollout continues. As we've noted, most CFOs expect growth to occur regardless of ARPA's role in that growth. But the survey shows that firms, in general, do not pin any surge in demand on the legislation.

March 23, 2021

Hourly and Weekly Perspectives on Wage Growth during the Pandemic

Despite record-setting job losses during the COVID-19 pandemic, median growth in the hourly rate of pay for those who stayed employed has held up remarkably well, which we can see in the Atlanta Fed's Wage Growth Tracker (see chart 1).

Chart 1 of 4: Wage Growth Tracker

The Wage Growth Tracker compares individual hourly wages in the current month with what the same individual's hourly wage was 12 months earlier and calculates the change. The fact that the median wage growth has not slowed, despite the increase in unemployment, suggests that the pandemic's impact on the labor market has been quite unusual.

During the Great Recession, the slowing in median hourly wage growth coincided with a large increase in the share of workers reporting that their hourly rate of pay was unchanged from a year earlier. As chart 2 shows, the share of workers reporting zero change in their hourly rate of pay has ticked up a bit during the COVID-19 pandemic, but so far, what we see differs from observations we made during the Great Recession.

Chart 2 of 4: Share of Workers Reporting No Change in Hourly Rate of Pay

Why did the COVID-19 pandemic have a relatively smaller impact on median hourly wage growth compared to the Great Recession? One explanation is that the supply of unemployed job seekers far exceeded job vacancies in the earlier recession. That is, employers typically received many more applicants for each available position. As chart 3 shows, at the Great Recession's peak, there were 6.5 unemployed workers for each job posting and 5.7 unemployed not on temporary layoff for each job posting. I think unemployed workers not on temporary layoff is a more useful measure of unemployed job seekers because those on temporary layoff expect to be recalled by their employer and hence are not necessarily looking for another job. Contrast that with January 2021, when there were 1.5 unemployed workers for each opening and 1.1 unemployed workers not on temporary layoff for each job vacancy. In this sense, the labor demand and supply during the COVID-19 pandemic has been more in balance than during the Great Recession. Compared with the Great Recession, apart from the period during the initial lockdown, total vacancies by firms has scaled back relatively modestly during the pandemic while the number of workers looking for a job has increased by less.

Chart 3 of 4: Number of Unemployed per Job Vacancy

Nonetheless, during both the Great Recession and the COVID-19 pandemic, many workers who remained employed have experienced an involuntary reduction in their work hours, which has dragged down workers' weekly paychecks even when their hourly rate of pay hasn't fallen. In February 2021, about 6.5 million workers were classified by the U.S. Bureau of Labor Statistics (BLS) as working part-time for economic reasons—almost 2 million more than in February 2020, just before the pandemic hit the U.S. economy. For this reason, I've constructed an alternate version of the Wage Growth Tracker, which shows the median growth of individual weekly earnings. This new measure uses the same data (from the Current Population SurveyOff-site link, jointly administered by the BLS and the U.S. Census Bureau) as the hourly earnings measure, and I show both series in chart 4 for comparison.

Chart 4 of 4: Wage Growth Tracker

Generally, the two series move in tandem, with the weekly series slightly outpacing the hourly series during economic expansions as hours worked tend to rise. However, as we see here, during both the Great Recession and the COVID-19 pandemic, reduced hours worked each week lowered many workers' median growth in weekly earnings relative to hourly earnings.

As the economy recovers from the COVID-19 pandemic, watching both the hourly and weekly versions of the Wage Growth Tracker will be useful. As fewer worker face reduced hours, I expect to see median weekly wage growth recover and at least match the pace of hourly wage growth. A tighter labor market should result in higher wage growth on both an hourly and weekly basis. I'll write about the developments using new Wage Growth Tracker data we'll post soon, so check back.

Note: If you are interested in tracking the hourly and weekly versions of the Wage Growth Tracker you can do that here, or via the EconomyNow app, which also features several other Atlanta Fed data tools.

February 24, 2021

WFH Is Onstage and Here to Stay

Chances are you recognize the relatively new acronym WFH as "working from home." In less than a year, WFH has become a ubiquitous, inescapable facet of life for many people, so much so that newswires now ask which cities are best for WFHOff-site link, and online job boards compile listsOff-site link of companies that allow remote work on a full-time, permanent basis.

Many people are debating the pros and cons of WFH. For employees, gone are the long commutes and cramped cubicles, but other work-related stresses have emerged. As the pandemic drags on, some workers experience feelings of loneliness and isolationOff-site link, health problemsOff-site link, and challenges related to work-life balanceOff-site link.

Back in May 2020, the Atlanta Fed's Survey of Business Uncertainty (SBU) elicited firms' views on WFH and found that, on average, firms anticipated that WFH would triple to 16.6 percent of paid workdays after the pandemic ends, up from 5.5 percent before it struck. Eight months later, we were curious to see whether and how plans had changed. So, in the January 2021 SBU, we asked two special questions very similar to ones we posed last May. Specifically, to gauge the extent of WFH, we asked, "Currently, how often do your full-time employees work from home?" To assess the future extent of WFH, we asked, "How often do you anticipate that your full-time employees will work from home after the coronavirus pandemic ends?" We asked firms to sort the fraction of their full-time workforce into six categories, ranging from five full days WFH per week to rarely or never.

It turns out that current plans are similar to those in May, with one important exception: firms increasingly favor a hybrid model for the postpandemic economy, walking back plans for the share of staff that will work exclusively from home. Chart 1 summarizes the responses to WFH questions posed in January's SBU and compares them to our May results. We also compare the results to statistics computed from the American Time Use SurveyOff-site link, conducted by the U.S. Bureau of Labor Statistics in 2017–18, which provides a useful benchmark. Aside from the striking similarity in pre-COVID levels of WFH across the surveys, several findings are worthy of note.

Chart 1 or 2: WFH before, during, and after the Pandemic

First, according to the January SBU, more than 35 percent of employees currently WFH at least one day per week. This estimate is plausible in light of work by Jonathan Dingel and Brent Neiman of the University of Chicago's Booth School of Business, which indicates that nearly 40 percent of U.S. jobs can be done at home Adobe PDF file formatOff-site link. Moreover, the current WFH configuration tilts toward multiple days at home. All told, 25 percent of paid workdays are currently performed at home.

Second, firms report surprisingly similar figures in May 2020 and January 2021 for the share of employees whom they expect to work from home at least one day per week after the pandemic. Given the unprecedented nature of the pandemic recession, eight months is a long time over which to hold such stable expectations, suggesting that firms are serious about their intentions.

However, expectations have adjusted in one key respect: last May, firms anticipated that 10 percent of the postpandemic workforce would be fully remote, as compared to just 6 percent as of January. While still double the pre-COVID share, the revised expectation suggests many firms are coalescing around hybrid arrangements, whereby employees split the workweek between home and employer premises. These plans entail a large break from prepandemic working arrangements, but they imply more limited scope for employees to live anywhere—or for employers to hire from anywhere.

Chart 2 shows how the extent of actual and planned WFH varies by industry. Every major industry sector saw dramatic increases in WFH during the pandemic. With the exception of retail and wholesale trade, firms in every sector anticipate that a tenth or more of paid workdays by full-time employees will take place at home after the pandemic ends. For firms in business services, information, finance, and insurance, the postpandemic figure is 30.6 percent. And for the economy as a whole, it's 14.6 percent—nearly triple the prepandemic level.

Chart 2: Paid WFH Days as a Share of All Working Days before, during, and after the Pandemic

Further digging into our survey results reveals the finding that COVID-19 shifted employment growth trends in favor of industries with a high capacity of employees to WFH and against those less able to accommodate remote work. Firms with a high WFH capacity experienced much higher stock returnsOff-site link in the past year than did firms with a low capacity. In addition, urban residences have become cheaper relative to suburban ones since the pandemic struck, suggesting that a shift to WFH has lowered the desirability of urban livingOff-site link. More WFH also means fewer people commuting into city centers and less worker spending on meals, coffee, personal services, shopping, and entertainment near employer premises. A recent study finds that a permanent shift to WFH will directly reduce postpandemic spendingOff-site link in major city centers by 5–10 percent relative to prepandemic circumstances. Of course, such changes also mean lower sales tax revenue for cities that had high rates of inward commuting before the pandemic.

To summarize, firms have largely stuck to their early expectations about the extent of WFH in the postpandemic economy. There has, however, been a notable drop in plans for employees to work from home five days a week. Remarkably, in every major industry sector except retail and wholesale trade, firms anticipate that WFH will account for one-tenth or more of full workdays by full-time employees, far above prepandemic levels. These shifts toward more remote work are driving a reallocation of jobs across industries and locations, contributing to fewer jobs, lower sales tax revenues, and lower property values in city centers. Our results suggest that these effects are likely to persist.

February 11, 2021

Insights from the Updated Labor Force Participation Dynamics Tool

We recently updated our Labor Force Participation (LFP) Dynamics tool with 2020 data. The new data highlight the impact that the COVID-19 pandemic had on the U.S. labor force in 2020. For example, the fraction of the adult population aged 25–54 employed or looking for work dropped from 83.0 percent to 81.2 percent between the fourth quarters of 2019 and 2020 (see the chart).

chart 01 of 01: Labor Force Participation Rate
Source: Current Population Survey from the U.S. Bureau of Labor Statistics, author's calculations

The 1.8 percentage point drop is mostly accounted for by a 1.1 percentage point rise in the share of people saying they want a job but are not actively looking (a segment often called the shadow labor force), combined with a 0.5 percentage point rise in the share of adults saying they had family responsibilities that kept them from looking for work, and a 0.3 percentage point rise in reasons not otherwise specified (but most likely attributable to concerns about COVID-19). Only partly offsetting these increases in nonparticipation was a 0.1 percentage point drop stemming from being in school or training, which could also be a result of COVID-19.

The Labor Force Dynamics tool allows users to dig into different demographic groups to investigate COVID-19's disparate impact on labor market engagement. For instance, for Black non-Hispanics aged 25–54, the decline in LFP is almost 3 percentage points: much larger than the overall decline. Over two-thirds of the decline for prime-age Blacks is attributed to a rise in the share of Black adults who want a job but are not currently searching for work. For Hispanic women, the participation decline is just over 2 percentage points, with half of that decline attributable to increased family responsibilities, which could be due to the lack of childcare options.

I encourage you to check out the updated LFP Dynamics tool. One interesting comparison would be to contrast what has happened over the last year with what happened to LFP and the reasons for nonparticipation between the fourth quarters of 2007 and 2010 (during the Great Recession). You will find some common features, but also some important differences. Enjoy!