Swine Flu, Spreading With Unexpected Rapidity, Threatens Recovery

The notion that swine flu will hurt the economic recovery in the fourth quarter has gone from a theory to a reality. The number of states that reported widespread infection went to 26 last week up from 21 the week before according to Centers for Disease Control. “H1N1 is spreading widely throughout the US,’’ said Thomas Frieden, the CDC director.

The H1N1 disease does not seem as fatal as was often feared, but it will clearly debilitate millions of Americans, many of them who are full-time workers. The disease is so easily spread that it could shut down small companies and individual locations of larger ones.

There are now what seem to be effective vaccinations for the swine fly but they have not been shown to be effective in the  innoculations of millions of people and it is not certain that everyone will take the disease seriously enough to get the shot.

When it appeared that the flu might become a serious health problems last spring, the CBO predicted that “a mild pandemic, similar to those in 1957 and 1968, could lead to 75 million people becoming sick, 100,000 deaths and a drop of 1 percent in the nation’s GDP.” Fourth quarter GDP is only expected to be up by 2% or 3% according to most economists, so any event that slows that could undermine a great deal of the momentum of what is already a fragile recovery.

The retail sector, which is currently expected to have a poor holiday season, could be hit hard by a flu pandemic. People are likely to stay away from stores and malls due to fear of contracting the disease. That may help e-commerce, but probably not enough to offset a sharp slide in sales at bricks-and-mortar stores. The retail industry is already expected to hire few people in the last quarter of the year. Extremely low sales will cause more store closures and lay-offs, probably right after the end of the 2009.

The largest effect of widespread flu is an undermining of productivity. The recession has caused many companies to do more with fewer people. This has improve production-per-employee, but it has stretched the daily work capacity of many workers. Huge absences at firms that are set-up to maximize output with lower numbers are people are likely to find that their operations are crippled when large numbers of  these employees cannot come to work.

The swine flu did not disappear as many people hoped it would. It just hibernated for a few months and is back with a vengeance, if a disease can be vengeful at all.

Douglas A. McIntyre