Thursday, October 22, 2020

Economic Activity Index drops in start of fiscal year

By on September 22, 2020

Chart from the July 2020 Economic Activity Index Report

Small improvement compared to June, but downward trend continues

SAN JUAN – The Puerto Rico Economic Development Bank’s (EDB) first Economic Activity Index (EAI) report for fiscal year 2021 shows an 8.9 percent drop when compared with July last year.

While EDB President Pablo Muñiz Reyes pointed out that the July EAI had a moderate increase of 2.3 percent compared with June, the report shows that two of the four indicators used to calculate de EAI climbed but the other two reflect a drop in activity. 

This contrast in the indicators that comprise the EAI is highlighted in the report’s conclusion, which states: “It is important to highlight that during July 2020, two of the Index’s four components registered annual growths: cement sales (23.4 percent) and electric power generation (1.7 percent); meanwhile the other two components declined: total non-farm payroll employment (-9.1 percent) and gasoline consumption (-30.4 percent).”

The overall EAI continues its downward trend since fiscal year 2012, the earliest included in the report. That year closed with an average of 133.7 points but by fiscal year 2014, the EAI average was 129.4.

The EDB’s index, which doesn’t entirely correlate with Puerto Rico’s gross national product, continued to reflect tae slowing of the island’s economy with an average 123.3 points by fiscal year 2017.

Given that Puerto Rico’s fiscal year runs from July to June, the EAI for fiscal year 2018 registered Hurricane Maria’s economic impact. It caused a larger dip in the index with an average 115.1 points in 2018’s EAI. While the following year’s EAI improved, it was still 1.2 points lower than the 2017 average.

Fiscal year 2020 ended with a 119.6-point average.

Muñiz highlighted that, as with fiscal year 2018, this past year’s index also registered the impact of crises. Specifically, the 2020 EAI recorded the aftereffects of the January earthquakes and the continuing economic debacle caused by the ongoing Covid-19 pandemic.

“The EDB EAI [year-over-year] percentage change grew for 20 consecutive months, in tandem with the recovery efforts that followed hurricanes Irma and Maria, and up until the Covid-19 global pandemic collective response took precedence over the non-emergency related endeavors, as of March of 2020,” reads the report prepared by economists Gladis Medina Claudio and Juan González Ruiz from the EDB’s Office of Economic Studies.

The four EAI indicators follow:

Total non-farm payroll employment (seasonally adjusted)

Total Payroll Employment (Establishment Survey/Thousands of employees). This variable is provided monthly by the Bureau of Labor Statistics of the U.S. Department of Labor and Human Resources (BLS). The establishment survey provides employment, hours and earnings estimates based on payroll records of business establishments in Puerto Rico.

  • averaged 801,000 employees for July; which represents no change in a month-over-month (m-o-m) basis, and an annual reduction of 9.1%. 

Electric power generation (seasonally adjusted)

Total Electric Power Generation (Millions of kilowatt-hours [kWh]). This variable is provided by the Puerto Rico Power Authority (Prepa) on a monthly basis. This indicator includes the electric power generation produced by petroleum, natural gas, coal and renewable energy sources. The renewable energy is supplied by utility-scale solar photovoltaic generating capacity, two wind farms and landfill gas sources.

  • totaled 1,1603.5 million kWh in July 2020; no change in a m-o-m basis, and an annual upturn of 1.7%. 

Gas Consumption (Millions of gallons).

This variable is provided by Puerto Rico Highways and Transportation Authority (PRHTA) on a monthly basis. The EDB adjusts the series with a three-month moving average.

  • The preliminary number for gasoline consumption (seasonally adjusted) in July 2020 totaled 51.2 million gallons, 1.8% below June, and a 30.4% fall when compared to July 2019. 

Cement Sales (Millions of 94-pound bags)

This variable is provided by CEMEX Puerto Rico & Argos Puerto Rico LLC monthly. The data are compiled and converted by the EDB.

  • Cement sales (seasonally adjusted) totaled 1.3 million 94-pound bags for July, a 6.5% decrease in a m-o-m basis, and a 23.4% increase when compared to July 2019. 

See the full report here.

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