I set calculation mode to automatic but when I enter "=Now()" inside a cell I do not see the time updating even when formatting is changed to show seconds. That worked in prior Excel versions. Is there anything fundamental that changed?
The assumption is not correct, it never updated automatically, in no Excel version.
It is not really possible, as it would mean that Excel would continuously update, using 100% of the CPU and disallowing any useful user interaction.
It does update when something else (calculation relevant) is changed on the sheet, and a recalculation is triggered that way. Changing a formatting is not an event that needs a recalculation, so that is not enough; but for example typing anything in any cell will trigger a recalculation.
Make sure the following setting is set:
Excel 2016: File > Options > Formulas > Workbook Calculation > Automatic.
And then use:
F9 or Ctrl+F9
If that does not work, please check for circular reference:
Formula > Error check > Circular reference
Or try to check the format type of the calculated cell, change "Text" to "General".