The impact of supply chain disruptions on business expectations during the pandemic

Brent Meyer, Brian C. Prescott and Xuguang Simon Sheng

Energy Economics, 2023, vol. 126, issue C

Abstract: Utilizing the Federal Reserve Bank of Atlanta’s Business Inflation Expectations (BIE) survey, which has been continuously collecting subjective probability distributions over own-firm future unit costs since October 2011, we document two facts about firms’ marginal cost expectations and risk during the COVID-19 pandemic. First, in the early months of the pandemic, firms, on net, saw COVID-19 largely as a demand shock and lowered their one-year ahead expectations. However, as the pandemic wore on, firms’ one-year ahead unit cost expectations rose sharply alongside their views on supply chain and operating capacity disruptions. Second, the balance of unit cost risks shifted sharply over the course of the pandemic and by the end of 2022, upside risks had sharply outweighed perceived downside risks over the year ahead. We find that both positive demand shocks (e.g. large order backlogs) and negative supply shocks (e.g. long supplier delivery times and labor shortages) have contributed to elevated short-term unit cost expectations and risk. Specifically, supply shocks accounted for roughly 40% of the increase in manufacturers’ and nearly one-third of service-providers’ unit cost expectations.

Keywords: Business expectations; COVID-19; Demand shock; Inflation; Pandemic; Supply shock (search for similar items in EconPapers)
Date: 2023
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Working Paper: The Impact of Supply Chain Disruptions on Business Expectations during the Pandemic (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:126:y:2023:i:c:s0140988323004498

DOI: 10.1016/j.eneco.2023.106951

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