Tag: Puerto Rico Economic Pulse©

As fiscal 2011 ended last June 2011, official data is estimated to once again post a contraction in real GNP growth for the PR economy. The island has had five years of recession, defined as negative real annual growth of its GNP. The crisis has exerted negative pressure on all sectors of the economy. The Government has continued to raise PR’s heavy public debt, a challenge that will adversely impact the fiscal outlook of the central government and its public corporations. Construction has been hardest hit with repeated declines in public and private investment, which continue to hamper future economic growth. Consumer sentiment seems to be less negative given the modest increase in car and other retail sales. Unemployment is high and inflation is inching higher with increased oil prices. This issue offers subscribers the opportunity to review the economic outlook and weave the internal and external economic threats present in this election year and in the near term future.

This is the worst recession in Puerto Rico’s history. The island economy has contracted 13% since FY 2006 or the past five years. Given this negative growth in recent years, the labor market is experiencing the consequences. What are these impacts? Is there any recovery in sight that will generate badly needed and well paid jobs in the current labor market? This issue analyzes those sectors that have lost most jobs and how trends in the labor force can give different meanings to the performance of the unemployment rate. A common misconception is that a decline in the unemployment rate is by definition is always a positive result. Find out when it is not. The recession has raised the structural rate of unemployment, reducing labor supply and potential output.The island faces many challenges ahead. Nobody said economic recovery in PR would be easy. Simply put: a shortage of jobs is bad for economic growth.

Puerto Rico’s current economic situation, just like that of any country, reflects both temporary and long-term effects. Many of the long-term economic processes, in turn, are supported by what economists call “structural” variables. These are variables that determine the type of economic activity and the manner in which it takes place. During the last decade, Puerto Rico witnessed a significant change in one such variable—population—coupled with an unprecedented economic downturn. The Island lost significant income, wealth and people. In peacetime, and barring any major natural disaster, such events are far from the norm, although they are not unusual. This issue of the Pulse, the fifth installment of a series dedicated to analyze PR’s population shift, will examine the socioeconomic dynamics that took place during the last decade with particular emphasis on demographic data for all municipalities in Puerto Rico. The results will surprise you.

Demographers’ warnings have become true: the world is getting grayer. Cohorts of people aged 60 years and older are swelling at an unprecedented rate. They now account for 11% of the world population and for a larger chunk in PR with 20% of total population. An aging population brings challenges and opportunities. This trend exerts pressure on pension systems, health services, labor market, retail, entertainment, housing, and government services. Find out what is the profile of our seniors in PR and how their spending differs from other age groups. Their buying trends are usually dictated by a need to maintain an active lifestyle and this represents a great opportunity in the market. We often mention other countries as “new markets”, but the market for seniors should not be underestimated. The opportunity awaits entrepreneurs who can match what seniors want with the correct product. Let’s take a look at Grandpa’s shopping cart and future pressure on government for more services.

Once the Mecca of the world automobile industry, a bustling city with nearly two million people, Detroit is now the symbol of decadence, exodus and shrinking population in the US. The latest Census 2010 added bad news to Puerto Rico. It seems the Detroit illness has crossed the sea and spread to the largest cities in the Island. San Juan, Ponce, Mayagüez, once the iconic cities Puerto Rico, are rapidly turning into ghost towns, filled with abandoned, distressed and dilapidated buildings. Hence, they have the dubious honor of leading the demographic contraction in Puerto Rico. In this issue, we review the disheartening figures from the latest Census 2010 and attempt to identify the reasons behind the Detroitization of PR’s largest cities.

For the first time in modern Puerto Rico, its total population declined from 3.8 million in 2000 to 3.7 million in 2010. The ageing population of 65 and over accounted for 15% of the total population in 2010 compared with 11% in 2000. By 2020, it could rise to 17%. This process is not unique to the island. The global population is going thru the same graying process but the consequences may be different among countries. The impact of this demographic transformation poses questions regarding the fiscal ability of each country to accommodate its aging population. Given that 45% of the population in 2010 was below poverty level, it is fair to ask if PR will need to raise taxes, cut spending, or borrow? What is the trade-off between fiscal sustainability and income adequacy? These changes will impact housing, education, entertainment, social services, health, trade, and more. Is PR ready?

Today, millions of people around the world are unemployed. Economic policies have changed the face of the workforce and demographic trends are shaping its future. Puerto Rico is also facing high unemployment with 16.4% as of August 2011. The transformation of our economy has taken its toll on the labor market and recent economic policies have not stumped the rise of the jobless, particularly among the youth. Jobs have been sacrificed in the name of fiscal austerity, especially in the public sector. If globalization and technological innovation are altering the structure of the labor market, then long-term, it is likely that unemployment will remain high. Is Puerto Rico prepared for these challenges? How is our economy changing to supply jobs to the young graduates of our universities and retain the jobs of our baby boomers, who need to stay longer in the workforce? Broadly speaking, we need a reform of our educational system and adjustments to our tax system and welfare safety net.

Over the past 10 years, the US federal public debt has increased by $9.7 trillion reaching the $14.3 trillion debt ceiling in 2011. That is “trillion” with a “T.” The US has borrowed from: the Social Security trust fund; China and Japan; and other investors. After a long and unprecedented congressional debate with political overtones, in August 2011 the debt ceiling increase was finally approved. The deal was approved together with $2.2 trillion in spending cuts over the next 10 years. The debate demonstrated the inability of US Congress and the Executive Branch to reach a consensus agreement. The end result harmed the prestige of the US economy and its financial system. Proposed spending cuts will impact almost all federal services and will hit Puerto Rico. This issue analyzes the causes of the US high debt, its consequences, and the impact in PR.

Many questions still remain about the biggest financial meltdown since the Great Depression three years ago. Unfortunately, few transparent answers have been provided. What triggered the credit crunch of October 2008? Have safety mechanisms been adopted to avoid a repetition of such an event? More importantly, why has the economic recovery taken so long?  Many risks to the US economic outlook remain even after the trillions of dollars spent to stabilize markets, reign in risk, and bring back consumer and business confidence. The economic fundamentals in most markets have not yet recovered from the almost 700,000 jobs lost per month at the beginning of 2009. Ironically enough, the same financial system that took the crisis to a new level will also hold the key to any long-term sustainable recovery, both in the US and Puerto Rico. A new economic order could be emerging. Are we prepared for it? Find out if we are any closer to leaving behind the darkest economic period in recent memory.

It is not a secret that Puerto Rico has experienced economic troubles since the past decade. The construction sector is one of the most beaten, with investments at a standstill, job losses, and few housing sales. A housing bubble is one of the causes and is part of the current recession. This current issue examines the formation of wrong expectations in the PR housing market without relying on real housing demand determinants. We discuss how these expectations caused a housing boom from 2003 to 2006 when housing prices and sales escalated rapidly. When the bubble burst, banks and developers were beaten and government has strived to solve the problem but not quickly enough. As always, it is the taxpayer who ends up paying for the excesses of others.