Tag: Puerto Rico Economic Pulse©

Five years ago, nobody could predict that in 2009 the most important concerns would be the loss of jobs and increased foreclosures. Nowadays, the financial crisis that started in the US has spread around the world. Unemployment in the US reached 9.7% in August 2009. Sale of houses in the US fell 25% per year since 2005. The Dow Jones Industrial average dropped to 6,547 points, similar to 1997 levels. Many financial and non-financial companies have filed for bankruptcy and almost all states in the US have large deficits. What are the roots of this debacle? Is it a real estate bust gone terribly wrong? Is it financial exuberance with a large dose of greed and creativity? How did it spread so quickly? This and other issues are addressed in this month’s issue of PR Pulse.

In 2008, around 47 million Americans or 15% of the US population were uninsured. In PR, the uninsured were 553,000 or 14% of the population. Today, improving coverage and quality in the health system while reducing medical expenses are key concerns in President Obama’s health care plan. But philosophical and empirical problems combined with political and private power pressures could elude the promise of a universal health system. These days, the discussion in Washington seems to be how many trillions will health care and the recession require for a quick fix. This proposed health reform will unquestionably affect PR as well. Around $13 billion was spent on health care in the island in 2008 while 11% of the public budget was allocated to finance health. The burning question is how will this plan affect the Puerto Rican public health care option?

After five decades of totalitarianism, Cuba is closer to an economic transition. The ultra-centralized economic model is crumbling and Cubans, as well as the rest of the world, are claiming for changes. The new US administration has bet on a more flexible and open policy to make Cuba embrace back the market economy.  Puerto Rico will not remain indifferent to such a milestone.  Many cultural, historical, and even family bonds tie these two islands. The eventual economic openness of Cuba has raised many concerns in Puerto Rico. Many believe Cuba is a big threat to Puerto Rico, in particular its tourist market. It is time to bring down this myth. This issue addresses a new world of opportunities for PR.

The current global financial and economic crises have generated major losses in banks; plunged stocks; blown up bankruptcies filings; escalated unemployment and beaten consumers’ pockets. But, there is another collateral damage that had not been completely realized. The collapse of stocks wiped out wealth and with it most retirement savings. As a result, one thing is sure for baby boomers on the verge of retirement: forget retirement! No doubt, many aging baby boomers will have to continue working past their traditional retirement age in order to enjoy the standard of living they dreamed. This is a dismal scenario but there are some positive outcomes too. This issue discusses how demographic pressures and the current economic crisis will affect our retirement plans.

Auto retail sales during the past ten years have closely followed prevailing financial conditions and the economy’s cycle. During the first half of the decade, credit conditions were relaxed, the PR economy and new auto sales expanded, reaching a record 140,401 units in 2005. Since then, the economy began to, first, decelerate and, then, contract since mid 2006. With the onset of the US financial crisis, credit conditions grew progressively tighter. Consumers became increasingly aware of risk, a gloomy job outlook, and the car market began its downward trend. Four years after posting record sales, the market forecast is half its sales in 2005. Find out what happened and what auto dealers are facing.

Housing has always been at the forefront of the PR economy. Together with the public sector, housing became a powerful engine that kept the economic machine working over the past fifteen years.  Now, with housing trapped in one of its worst slumps ever, the story is quite different. Construction is shedding more and more jobs and the bleeding has not stopped. Thousands of housing units remain empty across the island. The affliction of the housing sector has spread to the rest of the economy, including banks, mortgage bankers, realtors, and many other companies. This is not the first time housing goes astray in Puerto Rico. Past lessons were forgotten and there is still a lot to learn from this crisis. This issue analyzes some of the causes and draws valuable lessons for the future.

An era of fiscal deficits and oversized government may be ending but how long will it take the PR economy to regain healthy growth without the help of the US? With the world economy in its worst crisis in 70 years, every country needs to do its bit to rekindle global demand. President Barack Obama and his economic team are already racing against the clock to try and fix the US economy with trillion-dollar programs. The forecast for the US economy is recession in fiscal 2009 and 2010. Locally, Governor Fortuño is implementing a $500 million Criollo Plan, but trying to eliminate a $3.2 billion deficit in the short term may deepen the island’s recession. Under these conditions, PR’s recovery is like running into a 40-mile-an-hour headwind. Hard choices are still ahead.

The Puerto Rico economy, once again, finds itself at a crossroad. This time, however, the decisions adopted could have deep and lasting consequences and will depend on four issues.  First, how much of Puerto Rico’s appropriated funds under the $787 billion federal economic stimulus package, an estimated $5.0 billion, can be spent under local discretion. Secondly, the government’s fiscal accounts continue to be in an extremely delicate situation.  The cash-flow deficit in fiscal 2009 is staggering. The third issue is the government’s willingness, and political clout, to significantly cut fiscal spending, particularly to reduce the government payroll. Finally, no long-term economic development initiative has yet been put forward. Find out how these policy questions will determine output growth in Puerto Rico in the short and medium term.

The economic downturn in the US is halting growth in the rest of the world. This negative shock has affected adversely consumption and retail sales in the US mainland. PR is in its 3rd year of recession but retail sales appear not to have performed as negatively as in the US. Consumers in the island appear to be resilient and some retailers have expanded while other new retailers have started operations in the island. Credit tightening adversely affects consumer spending so this must be resolved if retail sales and consumption are to resume growth in the short run. Find out what happened to retail sales during fiscal 2008 and what is forecasted for fiscal 2009 and 2010. The presence of certain megatrends provides important insights about the changing Puerto Rican marketplace.

As reported previously, the two main problems of the current financial crisis are mortgage-backed securities and credit default swaps. This triggered a massive and coordinated worldwide response. By mid-October, central banks throughout the world had implemented different measures to counter the ongoing situation including loan guarantees, bank nationalization, interest rate reductions, foreign currency sell-offs, and direct liquidity injections. The US Emergency Economic Stabilization Act (EESA), signed into law on October 3rd, designed several programs to be financed with taxpayers’ money.  In principle, the total value of the rescue package is $700 billion although the overall rescue effort could easily topple more than $2 trillion. Some banking institutions in PR could benefit directly from some of these programs. Find out what these plans are and how the crisis could affect us in 2009.