Puerto Rico Compass ©

Q4 2010: Puerto Rico’s Recovery is Past Due

What 4th Quarter 2010 economic indices reveal

The fourth quarter of 2010 unveiled mixed results. Auto sales and housing sales improved, while other indicators, especially the labor market and the construction sector, pointed to continued recession. There are doubts regarding the strength of consumer behavior during Q4 since Xmas purchases were financed in part with the withholding personal income tax in December that Treasury did not collect. It is not clear yet how the Tax Reform will generate new economic activity and create new jobs. The frequently announced initiative of Public Private Partnerships that would generate investment and jumpstart the economy has not started. According to NBER, the US recession started in December 2007 and ended in June 2009 whereas our “criollo” recovery is still in the distant horizon. For many, a local economic recovery is long overdue.

Puerto Rico Economic Pulse ©

December 2010: Unrealized Great Expectations in 2010

A review of important economic events in Puerto Rico

As calendar year 2010 nears its end, we take a panoramic view of newsworthy economic events in Puerto Rico. The preface of course is what happened in the rest of the world and which also impacted our economy. The insatiable appetite of China’s exports as well as banking everywhere has touched us. At the start of the year, we were all hopeful that selected government policies would start turning the economy. Instead, we have seen the continuation of what could be described as the longest (4 years) and, so far, deepest economic recession in our modern history. In real terms, the economy’s real GDP has shrunk $767 million since 2006 and the labor market lost 176,000 jobs. Unemployment increased to 16% by October 2010. Indeed, 2010 feels as if 12 years instead of 12 months have elapsed. Policies, jobs, and houses have a lot to do with it.

Puerto Rico Economic Pulse ©

November 2010: Will PR Consumers Save this Economy?

An analysis of the current economic policy in Puerto Rico

The Governor of Puerto Rico, Hon. Luis Fortuño said in November 2010 “History has taught us that indeed, a dollar in the hands of Puerto Rican consumers generates more economic activity than a dollar in government hands”. With this statement, the current administration announced a pragmatic economic policy oriented to reduce personal and corporate income tax rates as well as inviting consumers to spend on retailers throughout the Christmas’s season. Government seeks to boost the local economy with consumption. The PR economy has suffered a long and deep recession, whose causes are mixed. This issue analyses the reasoning behind this kind of measure, its implications, the current economic situation, and its possible net effects. The main question right now is will Puerto Rican consumers save this economy? Is there an alternate plan in case this policy does not work?

Puerto Rico Economic Pulse ©

October 2010: Are Car Sales Going Green?

Recent performance of car sales and implications for PR

A global-scale recession started during the second half of 2008 and it hit the economy of the US. The recession in Puerto Rico started two years earlier and has not ended. It has impacted car sales; both in the mainland as well as in PR. President Barack Obama extended the financial bailout to once powerful US carmakers, such as, Chrysler and General Motors. Chrysler, managed by Fiat, is making progress and GM is profitable again. However, we understand this automotive industry crisis, which has affected manufacturers, workers, car dealers, and badly needed fiscal revenues, is not yet over. So far, economic recovery in the US translates into improving yet not spectacular car sales. PR has posted better car sales this year than in 2009 but they are still below 2006. With new technology and awareness of climate changes, will green plans drive car sales in the future? This issue analyzes how hybrid cars could shape the future.

Puerto Rico Compass ©

Q3 2010: Can Reforms Get Us Out of Recession?

3rd Quarter 2010 economic indices in PR track the economy

The third quarter of 2010 has seen the start of many reforms in PR, from permits to taxes to government and a few more yet to come. The “objective” is to improve the business environment in Puerto Rico. Downsizing the government was the first initiative to reduce bureaucracy and restore fiscal discipline. Permit reform, due to start December of this year, is the first of several initiatives to accelerate construction and put PR back on track. As October ends, we start discussing tax reform with a controversial excise tax on exports of foreign companies. Next in line is labor reform to restore competitiveness in PR. The question is: can these reforms get us out of the hole?

Puerto Rico Economic Pulse ©

September 2010: Still Waiting for the Takeoff

Reality and challenges for the PR tourism sector

Decade after decade, Puerto Rico has bet on its tourist industry to become a powerful growth engine of the local economy. However, time has passed and this industry is far from fulfilling such great expectations. Absolute dependence on US tourists, not much diversification, and high concentration in the San Juan metro area, among others, have strapped the PR tourist sector. While Puerto Rico remains sleepy, our neighbors in the Caribbean have achieved outstanding goals and left us with a smaller piece of the pie in the fight for foreign tourists.  This issue focuses on the local tourist sector and addresses the many challenges ahead for Puerto Rico and its competitors in the Caribbean. Does PR need more hotel rooms to compete? Is it an expensive destiny without proper service? These and other questions are relevant if the Island is to make this plane take off while competing effectively with its counterparts in the Caribbean.

Puerto Rico Economic Pulse ©

August 2010: The Bankruptcy Epidemic

Facts behind this growing trend in Puerto Rico

Bankruptcy filings in PR rose 25% in calendar 2009 compared with the previous year, according to statistics published by the Boletín de PR. This takes filings to their highest point since tougher bankruptcy laws were introduced at the end of 2005. That change brought a spike of bankruptcies, as companies and individuals rushed to declare themselves broke under the more lenient old regime. The data suggest that an older trend is reasserting itself. This is more bad news for PR. These numbers reflect the impact of the current recession, which started in FY2006 and continues to the present. And judging by the rise in unemployment, lower pay, massive layoffs, fewer people with health insurance, the mortgage and foreclosure crisis, depressed sales, and tighter credit, the situation may get worse rather than better. This issue examines bankruptcy in PR, its historic trends, changes in bankruptcy law, most affected economic sectors and municipalities, and finally explains what bankruptcies entail for our economy.

Puerto Rico Economic Pulse ©

July 2010: Another Puerto Rico is Possible – Part II

What the post-recession world will look like

The local economy’s transformation will require a renewed understanding of Puerto Rico’s challenges and opportunities as it slowly comes out of the current recession. This issue examines the Island’s economic outlook and new economic trends without any reference to public policy. Emerging consumption and production patterns are thus analyzed without assuming that the government can or will provide the appropriate incentives. New consumption trends are now becoming noticeable and, more importantly, Puerto Rico’s production base is in the midst of a profound transformation. The opening of new export and import markets will continue to provide challenges but, almost unnoticed until recently, will also offer immense business opportunities. The world economy changed radically almost 15 years ago and Puerto Rico was left behind. If anything positive is to come out of the recession, it will be a decisive push towards a definitive embrace of world markets.

Puerto Rico Compass ©

Q2 2010: Strike to the Economy

An analysis of 2nd Quarter 2010 economic indices in PR

Puerto Rico’s second quarter has been characterized by media coverage on the consolidation in banking sector where three troubled local banks were acquired by other banks in an FDIC assisted transaction. The second big issue was the two-month students’ strike at the University of Puerto Rico (UPR). It had huge economic implications. At the economic sectors level, construction continues to pull the economy downwards while a cautious banking sector continues to tighten credit. The Public Private Partnerships have not started yet but they still ignite positive expectations for the near future. Amidst this bleak outlook, some good news emerge, mainly positive consumer spending and new, though more long term, announcement of investments in the tourism sector.

Puerto Rico Economic Pulse ©

June 2010: Another Puerto Rico is Possible – Part I

An analysis of current economic crossroads

The Puerto Rican economy is in the midst of a long and deep recession, which is expected to leave permanent effects on the Island’s economy. In this sense, much remains to be seen given existing economic trends and public policies as well as the limited impact of what traditionally have been PR’s engines of growth, what can we conclude about the island’s economy. In our opinion and despite all the negatives, it is still possible to transform Puerto Rico. This first issue of a two part series takes a look at some of the main concerns and provides a long-term view of key economic variables that shed light on the structural causes of the current situation. Some of these effects were clearly imposed on the PR economy. Others were not. Find out what these are and how they could evolve if public policy does not deal with them. Part II (July issue) will examine the business models and consumer of the future, as well as emerging economic opportunities.