Puerto Rico Compass ©

Q4 2011: Charting the Year in Puerto Rico

What the economic indices tell us in 4th Quarter 2011

Nowadays, recovery is the most wanted outcome in the US and PR. Usually, signs of early growth show up in consumer spending, housing, and construction. This time around, these sectors have been the last to recover in the US. Instead, the US economy is showing signs of recovery on the production side. Manufacturing and business investment have led the way, driving down the unemployment rate. For some economists, that improvement may finally lead to improved consumer spending in the US. The relevant question for us is whether PR shows signs of a production side recovery or if trends in consumer spending, housing, and construction in the island speak of a consumer side recovery? HCCG’s indices for the 4thQ can provide some answers and chart the performance of CY 2011.

Puerto Rico Economic Pulse ©

December 2011: Inside Grandpa’s Shopping Cart

An analysis of what seniors buy, need, want, and entail

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.

Puerto Rico Economic Pulse ©

November 2011: The Detroitization of Puerto Rico Cities

On the plummeting population in the largest cities

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.

Puerto Rico Economic Pulse ©

October 2011: The New Demographic Landscape

Puerto Rico enters unchartered territory

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?

Puerto Rico Compass ©

Q3 2011: We Are Not There Yet

An analysis of 3rd Quarter 2011 economic indices in PR

Puerto Rico’s third quarter indices reveal a mixed picture. The economy is not yet out of recession but there are some positive signs. However, there are already rumors of another recession brewing in the US as a result of the unresolved debt hangover in Europe and its efforts to save Greece and the continent’s debt-burdened banks. Still, the idea that the island has hit bottom is a possibility but, as we have indicated in prior issues of Compass, this will depend not only on internal but also on external factors originating in the US and other global economies. There is increasing dissatisfaction with escalating electricity prices and persistently high unemployment. This issue tracks the 3Q of the PR economy and highlights some trends.

Puerto Rico Economic Pulse ©

September 2011: The Changing Face of PR’s Workforce

How policies and demographic trends shape the labor market

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.

Puerto Rico Economic Pulse ©

August 2011: What Happened in the US?

A story of politics, public debt, and consequences

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.

Puerto Rico Economic Pulse ©

July 2011: Life Three Years After the Financial Crisis

Are we out of the woods yet?

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.

Puerto Rico Compass ©

Q2 2011: Are We Heading into Recovery?

An analysis of 2nd Quarter economic indices in PR

Fiscal discipline has led to a very disappointing performance of all economic sectors, including the government. The second quarter economic indices suggest that the process of recovery is still a long way. During this quarter, manufacturing, construction, and banking continued to pull the outlook of the leading index. On the other hand, some mild gains in employment levels improved the coincident and consumption indices. We face some tough balancing acts among growing tourism, stagnant manufacturing, stale construction, a cautious consumer, and a healing banking sector. Puerto Rico still faces tough headwinds ahead not only internally but also externally with the US debate on its debt ceiling and potential default. What has been learned so far? Fiscal deficits can be cured with a medium-term plan for deficit reduction but cutting back spending viciously in the short term at a time of private-sector retrenchment has been a mistake.

Puerto Rico Economic Pulse ©

June 2011: Wrong Expectations Regarding Housing

An analysis of the PR housing bubble

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.