The work-from-home (WFH) experiment ushered in by the virus pandemic will become more permanent, resulting in quieter metro areas, less crowded office buildings, and a decline in traffic jams.
A new working paper titled "Why Working From Home Will Stick" by UChicago researchers said the days of an office-based 9-to-5 job is over as hybrid telecommuting and other WFH technologies make remote working possible for millions of Americans.
The post-pandemic shift from the office to home will decrease spending in major metropolitan areas by up to 10%, researchers Jose Maria Barrero, Nicholas Bloom, and Steven Davis said. For more crowded areas like Manhattan, the researchers projected consumer spending would drop by 13%.
So what about the economic revival policymakers and central bankers keep promising us? Well, perhaps a robust recovery in city centers may be an unattainable goal. Once again, office workers drive spending - and with some of them working at home, longstanding consumer trends within many metro areas will suffer permanent declines.
"Higher levels of WFH will present pointed challenges for urban areas, especially cities with high rates of inward commuting by well-paid professionals in the pre-COVID environment. As these workers cut back on commuting, they will spend less on food, shopping, personal services, and entertainment near workplaces clustered in city centers. In preliminary calculations that exploit our survey data, we project that overall consumer spending will drop 5 to 10 percent or more (relative to the pre-pandemic situation) in San Francisco and Manhattan because of declines in net inward commuting and less spending near employer premises. Their central business districts will see considerably larger spending drops relative to the pre-pandemic levels," researchers said.
In July 2020, we first previewed, via a KPMG International report, how WFH would impact the economy and result in declines for "automakers, retailers, and industries directly or indirectly related to transportation will take a massive hit for the next several years."
KPMG predicted WFH "accelerated powerful behavioral changes that will continue to shape how Americans use automobiles. We believe the changes in commuting and e-commerce are here to stay and that the combined effect of reduced commuting and shopping journeys could be as much as 270 billion fewer vehicle miles traveled (VMT) each year in the US."
Without workers flooding city centers every morning and stacked inside office buildings, metro areas will suffer a permanent drop in spending, which means many service jobs will be lost and a labor market deeply scarred.
UChicago's researchers support the idea that WFH is accelerating urban flight.
... and the million-dollar question is what does Wall Street think about WFH?
To answer that question, Deutsche Bank credit strategist Jim Reid polled Wall Street professionals who said the best thing about WFH is the lack of a commute, among other perks...
So the combination of WFH and moving to the suburbs will leave lasting impacts on city centers that will experience permanent declines in consumer spending. So much for that robust recovery policymakers keep telling us about...