With the British Chamber of Commerce hosting an online seminar on Tuesday to discuss the potential impact of swine flu on businesses, it is probably an apt time to look back at the effects of the last great influenza pandemic — that of Spanish flu in 1918 — on the financial services industry.
That particular flu outbreak infected about one-fourth of the global population and killed something like 50m to 100m people as it swept the world during late 1918 and early 1919, coinciding with the end of World War I.
Interestingly enough, according to an article by the Federal Reserve Bank of Philadelphia, despite its severity Spanish flu did little to disrupt (American) markets, though that may have been down to the effects of the end of a World War and, intriguingly, a degree of censorship about the true extent of the outbreak, according to the paper:
The financial services industry proved resilient in the face of the pandemic. As noted, states throughout the country in 1918 were forced to order many public gathering places to shut down. Banks, however, were generally not required to close. In addition to closing down certain businesses, health officials in many areas staggered opening and closing times for many businesses to minimize crowds and decrease congestion on transportation lines. However, the New York City Board of Health published a resolution on October 6, 1918, in the New York Times that affirmed that, “The opening and closing of banks, trust companies, and offices of the United States Government are not affected by the provisions of this order.”
Like other industries, sickness of the labor force did impede operations in financial services. An article in the Wall Street Journal on October 24, 1918, states that efficiency at the Federal Reserve Bank of New York had been hindered due to 300 cases of influenza out of a workforce of 2,515. Similarly, the pandemic caused the Boston Stock Exchange to close for a day in late September. Nevertheless, most banks and financial markets remained open and continued to function throughout the crisis.
Perhaps most important of all, the payment system functioned normally throughout the crisis. A New York Times article dated October 12, 1918, states, “Clearings through the banks continue to be maintained in noteworthy volume at most of the more important centers in the United States, the total this week, according to Dun’s Review, amounting to $5,662,220,053, an increase over the same week last year of 12.2 per cent.” This growth was achieved despite a peak in influenza cases. The following graph is an illustration of monthly bank clearing amounts from 1916 to 1921. The graph displays a general upward trend in bank clearings during the course of the pandemic. It also shows that, at $31.8 billion, total bank clearings for October-the deadliest month of the pandemic-equaled the largest amount registered of any month in 1918.
Similarly, most financial markets remained open during the crisis. In fact, stock prices and volumes on the New York Stock Exchange were surprisingly unaffected by the pandemic. By the end of 1918, the Dow Jones Industrial Average was up 10.5 percent for the year and continued its upward climb, experiencing a 30 percent post-war rally in early 1919. The Dow also reached its high for 1918 in mid-October, when the pandemic was at its peak. Furthermore, trading volume on the NYSE showed an upward trend during the height of the epidemic. Cooper and Grinder offer three primary reasons why the market was not affected. They suggest press censorship kept investors from knowing the extent of the epidemic, news about the war overwhelmed influenza news, and government officials downplayed the severity of the disease to the public. The lack of immediate public awareness to the pandemic’s severity and the impact of World War I are two factors that may have diminished the effects of the pandemic on the financial markets.
Makes you wonder about those government guidelines, eh?
(H/T Alea)
Related links:
Swine flu: when America sneezes – FT Analysis
Response to swine flu had to wait, says health minister – FT