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Q32017: PR’s Infrastructure: A House of Cards?

During 3Q 2017, two Category 5 hurricanes hit the Island causing unprecedented damages to the economy. Damages which could conservatively surpass $115 bn. The Island’s power grid was practically destroyed with massive damages, in roads, bridges, ports, airports, buildings, equipment, housing, and telecommunications, among others. All economic sectors depend on infrastructure to thrive; some sectors rely more than others but a good and consistent infrastructure is a must to be competitive in this global economy. Hurricanes Irma and Maria demonstrated that much of the PR alleged robust infrastructure was only a house of cards and when the winds blew out the electrical grid, all the house collapsed. This issue analyzes the repercussions of a broken infrastructure and how this impacts HCCG’s six quarterly economic indices in 3rd Q 2017.

Hurricane María over Puerto Rico
Source: NOAA
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2Q-2017 Will Manufacturing Save Puerto Rico?

An analysis of 2nd Quarter 2017 economic indices

Historically, manufacturing was a growth engine in Puerto Rico. Manufacturing’s relevance started with operation Bootstrap and the implementation of Section 931 of the US Internal Revenue Code in the 50s and continued with the implementation of Section 936 in the 70s. Thus, the contribution of manufacturing to the nominal GDP growth grew from 25% in the 50s to 61% in the ‘00s. However, due to the end of Section 936 in 2006, international competition, the end of several drug patents, and the PR fiscal and debt crises, the contribution of manufacturing to the Island’s economic growth fell from 61% in the ‘00s to 46% this decade (2010-2016). Is this sustainable? Worldwide, manufacturing paints a gloomy picture. Although responsible for 8% of total jobs, manufacturing was responsible for 47% of PR’s GDP in 2016. This issue examines the performance of 2Q-2017 indices with emphasis on manufacturing.

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1Q-2017 Leading Us into a Disaster?

Analysis of Puerto Rico’s Q1-2017 Economic Indices

The PR Oversight Board started to put pressure on the PR government. It is in search of results related to savings, cuts, and efficiencies in the PR government. The Administration has both hands full dealing with budget, reports, and measures with deadlines imposed by the Board. Perhaps for this reason, it seems the PR government has not engaged in a proactive role to restore growth. Instead, it appears Governor Rosselló and all the heads of agencies and public corporations are reacting to the Board’s increasing requirements. Whatever the magnitude of the measures, i.e. $120 mn or more than $500 mn cuts to the UPR budget, it is clear those are recessionary fiscal policies. The external sector, specially oil prices and interest rates, is changing rapidly, heading to a more challenging environment. This issue analyzes some risks in the future and why the Board and the PR government should take bold actions to spur growth instead of following an accountant approach to reach the Fiscal Plan targets.

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4Q-2016 Industry Leaders React to New Policies

4Q-2016 industry analysis and PR Administration policies
This edition of Puerto Rico Economic Compass, analyzes the 4Q-2016 economic indices and includes an industry analysis of the PR economy plus economic policies proposed by the new Administration. The elected governor, Ricardo Roselló and the PROMESA Fiscal Oversight Board have certainly altered expectations for 2017. New executive orders, approval of sweeping labor legislation, and continued dialogue with the PROMESA Board regarding key recommendations to be implemented in the near term, have raised both praise and criticism by several industry sectors. For instance, the recently approved Labor Reform Act has been praised and promoted by several industry and retail employers but has met a backlash from many in the labor movement. No doubt, the new government has been very busy trying to adopt and implement the fiscal and economic plan demanded by the PROMESA board since last December. What’s the rest of the story?
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Q3 2016 – Is Election 2016 Different for Puerto Rico?

Does the upcoming race change anything?
With elections just around the corner, do Puerto Ricans think the next Governor will have a profound impact on the economy? This issue of Compass analyzes the performance of HCCG’s six quarterly indices during the past non-election years compared with historical election years from 2000 thru 2012 and this year’s results. Find out if the consumer index tracks Puerto Ricans’ sense of financial security in their spending patterns. However, banking, construction, and manufacturing as well as the coincident index suggest the results of this election could prolong the lengthy economic recession of the past 11 years. Any election year brings uncertainty and many business owners could be hesitant to make long-term decisions. To complicate matters, the recently US Congress mandated Fiscal Control Board has absolute powers over the administration of the Island until fiscal discipline is restored, public debt is serviced, and there is access to financial markets. What is certain is that all of this will take years in the making.

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Q2 2016: It is Still a Long Bumpy Ride

Analysis of Puerto Rico’s 2nd Q 2016 economic indices

The goal of Compass is to provide insights on drivers of PR’s overall economy and key economic sectors with the latest financial and economic data on a quarterly basis. The 2nd Quarter of 2016 depicts an economy still in the doldrums with a negative short-term outlook. Banking, Manufacturing, and construction seem stuck in negative territory. Manufacturing keeps losing jobs, which are often middle paying, largely because of technology and worldwide weakness in China. This year’s presidential race in the US and the gubernatorial race in PR raise more issues than solutions. Start with minimum wages. US candidate Hilary Clinton supports raising the federal minimum wage to $12 an hour, up from today’s $7.25 and candidate Trump recently endorsed a rise to $10 an hour. A higher minimum wage would help some workers in the low-paying food services and accommodation industries, so long as the higher minimum did not destroy their jobs by making it unprofitable to employ them. On the local front, the expected US fiscal control board has done little to halt the island’s mood of uncertainty.

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Q1 2016: Uphill All the Way in Puerto Rico

An analysis of 1st. Quarter 2016 economic indices

Puerto Rico is now in its tenth year of economic recession, which it started in 2006. The fiscal crisis, which has played center stage in the past administrations, has been defined by a failure to provide effective governance and leadership in response to serious economic challenges. The fiscal crisis has not gone away and the harsh tax increases have been compounded by a migration crisis. Q1 in 2016 was plagued with uncertainty, fueled by: government’s inability to pay its public debt, suppliers, reimbursements to taxpayers, fear of job losses at GDB, poor retail sales performance, and an unsympathetic US Congress intent on enforcing a Fiscal Control Board over Puerto Rico with unknown implications. Among all these uncertainties, only one thing is certain: the future will be uphill all the way and at significant political and economic cost. This issue examines the performance of our six quarterly indices, which depict an economy in trouble.

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Q4 2015: No End Yet for PR’s Fiscal Crisis

How this impacts 4Q-2015 economic indicators

Several bold events occurred this quarter in Puerto Rico and the US. In October, the US Department of Treasury presented a Roadmap for Congressional Action, suggesting key measures to deal with PR’s fiscal crisis. At the end of the year and after several public hearings, Congress could not reach an agreement regarding Chapter 9, a federal fiscal control board, Medicaid funds parity for PR or other lifesavers such as the Earned Income Tax Credit or a Child Tax Credit for Puerto Rican households. Locally, the administration was dealing with liquidity strains and submitted several proposals to solve the problem. However, it appears that without federal assistance, the internal actions will fall short. The net effect of this situation is widespread pessimism and uncertainty. This current issue analyzes how these events have impacted economic indicators during 4Q 2015 and what to expect in the near future.

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Q3 2015: Recession’s Sharp Bite Continues

Puerto Rico’s sagging economy, 3Q-2015

It will take more than patience to free the PR economy from nine years of negative real growth. Failure to design and execute earlier in 2013 an effective economic plan explains in part our current situation and doing nothing is no option. It is important to understand if the continued declines in the 6 quarterly indices of HCCG for the PR economy are a cyclical phenomenon or a longer-lasting transition to a new, slower state. During Q3-2015, PR continued facing fiscal challenges with a shortfall of liquidity for payment of public debt service; a continued challenge with restructuring of the PR Electric Power Authority and other public debt; hearings before US Congress in an effort to present PR’s dire fiscal and economic situation to obtain some relief; a move to avert an upcoming cut in Medicaid and Medicare Advantage funds; and last minute amendments to a legislated 4% B2B service tax, among others. The prospect of a government shutdown is madness. All quarterly indices indicate nothing seems right. What is the right response?

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Q2 2015: Casualties of PR’s Economic Recession

A snapshot in Q2-2015

The six quarterly indices for the Puerto Rico economy have one thing in common: they are all in negative territory. The Construction index in particular continues to pull down economic recovery in the near future. Other indicators reflect consumer’s lack of confidence in a labor market that continues struggling, a suspect deflationary environment awaiting the impact of a higher SUT tax effective July 1, 2015, and a financial sector that continues downsizing. Thus the island is “not poised for a growth spurt once the fiscal cliff and payment of public debt are normalized.” Some moves in the leading index may be promising, particularly as oil prices continue to tumble and interest rates remain low. The private sector jobs have not been able to neutralize the reduction and attrition in government jobs. Housing sales are flat and do not spur new construction in the near term. Compared to the US and some of its regions, Puerto Rico’s economy continues to struggle and international financial markets are not inclined to lend to the once frequent and desirable municipal bond issuer.