The Cost of the COVID-19 Crisis: Lockdowns, Macroeconomic Expectations, and Consumer Spending

51 Pages Posted: 6 May 2020

See all articles by Olivier Coibion

Olivier Coibion

University of Texas at Austin

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Michael Weber

University of Chicago - Finance

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Date Written: May 5, 2020

Abstract

We study how the differential timing of local lockdowns due to COVID-19 causally affects households’ spending and macroeconomic expectations at the local level using several waves of a customized survey with more than 10,000 respondents. About 50% of survey participants report income and wealth losses due to the corona virus, with the average losses being $5,293 and $33,482 respectively. Aggregate consumer spending dropped by 31 log percentage points with the largest drops in travel and clothing. We find that households living in counties that went into lockdown earlier expect the unemployment rate over the next twelve months to be 13 percentage points higher and continue to expect higher unemployment at horizons of three to five years. They also expect lower future inflation, report higher uncertainty, expect lower mortgage rates for up to 10 years, and have moved out of foreign stocks into liquid forms of savings. The imposition of lockdowns can account for much of the decline in employment in recent months as well as declines in consumer spending. While lockdowns have pronounced effects on local economic conditions and households’ expectations, they have little impact on approval ratings of Congress, the Fed, or the Treasury but lead to declines in the approval of the President.

Keywords: Subjective expectations, consumer spending, labor market, employment, COVID -19, surveys

JEL Classification: E31, C83, D84, J26

Suggested Citation

Coibion, Olivier and Gorodnichenko, Yuriy and Weber, Michael, The Cost of the COVID-19 Crisis: Lockdowns, Macroeconomic Expectations, and Consumer Spending (May 5, 2020). Chicago Booth Research Paper No. 20-08, Fama-Miller Working Paper, University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-60, Available at SSRN: https://ssrn.com/abstract=3593848 or http://dx.doi.org/10.2139/ssrn.3593848

Olivier Coibion

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://www.econ.berkeley.edu/~ygorodni/index.htm

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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