For release: Oct. 2, 2007

St. Louis Fed Analysis: What's the Potential Impact of a Bird Flu Pandemic?

ST. LOUIS, Mo. — In the event of a widespread influenza pandemic in the United States, the odds are that residents in major metropolitan areas would suffer greater mortality rates than those in rural areas, while some businesses could see a decrease in revenues and others, such as healthcare firms, could gain.

Those are just several potential outcomes explored by economist Thomas A. Garrett in the October issue of The Regional Economist, a quarterly publication of business and economic topics published by the Federal Reserve Bank of St. Louis. The publication is also available online at the St. Louis Fed's web site.

The U.S. Department of Health and Human Services estimates that a flu outbreak would cause 1.9 million deaths in the United States and result in initial economic costs of about $200 billion.

Garrett said these and other possible outcomes are based on mortalities and costs from the flu epidemic of 1918. Occurring from the spring of 1918 through the spring of the following year, the pandemic killed 40 million people worldwide, including some 675,000 in the United States.

To determine the effects of the influenza pandemic then—and what implications it could have for a present-day parallel—Garrett gathered both economic data and newspaper accounts available from the era.

For example, he found empirical evidence that cities and states with greater influenza mortalities during the pandemic experienced a greater increase in manufacturing wage growth from 1914-1919, while another analysis hypothesized that states with large numbers of influenza deaths per capita experienced higher rates of growth in per capita income following the pandemic because capital per worker (that is, output per worker) rose in the subsequent years.

"Of course," cautioned Garrett, "no reasonable argument could be made that the benefits from wage growth outweighed the costs from the tremendous loss of life and overall economic activity."

Also on the downside, one study of the longer-term affects of the 1918 influenza outbreak found that women who were exposed to the flu that year gave birth to children who had greater-than-normal medical problems later in life, such as schizophrenia, diabetes and stroke.

Garrett said analysis of a modern-day situation suggests that cities are likely to have greater mortality rates than rural areas because of population density. In addition, nonwhite groups as a whole have a greater chance of death because roughly 90 percent of all nonwhite residents live in urban areas, compared to 77 percent of whites. And, while urban dwellers, on average, are likely to have better access to quality health care, nearly 19 percent of the population of U.S. cities has no health coverage, compared to 14 percent of rural residents.

He also noted that the quality—and availability—of health care could become an issue, particularly if medical staffs themselves succumb to the flu. In addition, the initial loss of employees could result in some businesses experiencing decreases in revenue by more than 50 percent, although others, such as health services and products, may experience an increase in business.

Given these and other possibilities, Garrett asked: Should Americans rely on local, state and federal governments to help in the event of a widespread flu epidemic? He noted a 2005 report that suggests the nation is far from prepared for a flu epidemic like that of 1918. "Assuming that citizens want government to prevent or mitigate a flu outbreak," said Garrett, "then there should be great concern over government's readiness and ability to protect citizens from any future pandemic."

He concluded, "Perhaps public education on flu mitigation, a greater reliance on charitable and volunteer organizations, and a dose of personal responsibility—along with flu vaccines—may be the best ways to protect Americans in the event of a future influenza pandemic."

With branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. The St. Louis Fed is one of 12 regional Reserve banks that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. As the nation’s central bank, the Federal Reserve System formulates U.S. monetary policy, regulates state-chartered member banks and bank holding companies, and provides payment services to financial institutions and the U.S. government.

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