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.