How A Swine Flu Pandemic Affects Our Economy

by Jacques Sprenger on May 6, 2009

Our best bet to keep the swine flu pandemic from becoming a reality? These flu prevention tips to keep ourselves healthy!

We all know that Mexico’s economy has suffered enormously from the impact of the swine flu. They had to shut down schools, movie theaters, subways, government offices and museums, while many restaurants were only accepting a limited number of customers. Soccer, an enormously popular sport, saw empty stadiums and the loss of millions of dollars in revenues for the clubs. In my neck of the woods (actually we don’t have any woods down in south Texas, but we enjoy our resaca, which are small lakes that pepper the Rio Grande Valley), most school districts shut down for a week and you can’t find a can of Lysol in the stores to save your life. Such is the restrained panic on the southern border with Mexico.

flu pandemic, economy

Along Comes The Swine Flu

Economists lament the timing of the flu. As one of them says: “Just as we saw the light at the end of the tunnel [of the recession], along comes the swine flu.” Travel warnings, including an ill-timed, panicky comment by the Vice-President, have severely hurt air travel, especially tourism to Mexico. My daughter was going to spend a few days in Puerto Vallarta, Mex, but had to postpone her plans due to the flu scare. Some people have made the conclusion that the pandemic flu, even if it turns out to be mild as it appears right now, will have an enormous economic effect.

I’ve also come across this speculation: “that a severe influenza pandemic would have an impact on the U.S. economy that is slightly larger than the typical recession experienced during the period since World War II.” In plain words, since the GDP in the U.S. fell around 4.1% in past recessions, then it would be expected to do the same if the flu goes crazy. It may not happen now in the spring, but it could certainly come back with a vengeance in the fall, a scenario that the CDC is preparing for. Think of all the man-hours that we could lose because of so many sick people staying home. Despite all this talk, I tend to disagree with this dire prediction; people all over the U.S. are doing business as usual, going to the movies, to sports events, and to work without serious concerns.

How The Flu Pandemic Affects Our Economy

Nevertheless, the flu scare has impacted our lives directly. Markets are very skittish; they respond to any bad news by selling and driving the stock market index down. There are predictions of late that any stock market rally we’re seeing now won’t last because of the threat and fears of an imminent pandemic.

On that note, according to The Seeking Alpha blog, the media assumes that serious investors are so naïve that they react to any news by buying or selling. Well, actually, yes. Gasoline went down for a few days as investors believed that the pandemic scare would result in fewer cars on the road. One bad word by Joe Biden caused airline stocks to head south. The 9/11 attack caused an immediate economic recession. So, yes, investors react very strongly to news, good or bad, and that affects our portfolio and 401Ks directly.

Are Small Businesses Affected?

Many business owners and retailers are concerned that consumers will stay away from shopping at brick and mortar stores and other public areas, fearful of the danger of contamination. But that hasn’t happened, at least in Texas, one of the states most affected by the swine flu: many business owners have reported that the lunch crowd has been looking better than average despite headlines about the flu dominating the news channels.

This seems like favorable news for certain local economies, at least for now, despite the fact that the Federal Reserve has warned that the flu outbreak could potentially force U.S. consumers to retrench further. In a delicate economy, a serious pandemic could indeed erase all recent financial gains and cause the Dow Jones to plunge further than it already has. Luckily, the main technical trading indicators give us hope that we are rebounding, with the Consumer Confidence Index rising much higher than expected last month, actually reaching its highest levels since late last year.

It seems that our initial pandemic scare has turned out to be a false alarm. It would be interesting to receive some feedback from our readers to gauge the national impact and emotional reaction of people across the Americas. But here’s what I think: if you have plans to travel to Mexico, weight the risks. Are fears really overblown? Think about how the beaches are beautiful and germ-free. Isn’t it the case that your main risk is more in the water than on land? A big plus for travelers is that resorts have suffered, so you’ll have the all-you-can-eat buffet all to yourselves (forget the diet for a while) and Mexicans will be delighted to welcome you for an enjoyable stay.

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