Puerto Rico economic activity for July drops compared with last year
Economic Development Bank index reflects 2nd year-on-year drop after 11-month climb
SAN JUAN — Puerto Rico’s economy continues to show signs of weakness, as a leading indicator, the Economic Development Bank’s Economic Activity Index (EDB-EAI), registered a second consecutive annual drop after what had been 11 straight months of increases.
According to the latest report, July’s EDB-EAI reached 120.5, 0.1 percent higher compared with June, but 1 percent less than for July 2018.
The seasonally adjusted EDB-EAI is made up of four indicators: total non-farm payroll employment reflected in the establishment survey; total electric power generation in millions of kilowatt-hours (kWh); cement sales in millions of 94-pound bags; and gas consumption in millions of gallons.
Two indicators, total nonfarm payroll employment and total electric power generation, showed year-to-year increases of 1.6 percent and 2.9 percent, respectively. However, cement sales and gas consumption decreased by 7.8 percent and 18.7 percent, respectively.
“It should be noted that the annual comparison is with respect to a period during which the island’s electrical system was not completely restored after the impact of hurricanes Irma and Maria,” reads July’s report, which notes that the annual EDB-EAI for July last year had increased by 0.2 percent. “Consequently, EDB-EAI growth is gradually approaching the behavior that existed prior to the hurricanes.”
The EDB-EAI had been decreasing on an annual basis before the storms struck the island, with the last annual increase registered in 2012.
The index began an 11-month inter-annual increase in July 2018, as the island’s economy was lifted by the influx of hundreds of millions of dollars in post-hurricane aid for emergency repairs. Nevertheless, the index reflected its first year-over-year decrease in June, as most of these projects, including the Federal Emergency Management Agency’s (FEMA) $1.2 billion “Tu Hogar Renace” (Your Home Reborn) home repair program, ended earlier this year.
Puerto Rico’s economy has yet to see the effects of the billions in additional federal funding assigned for permanent reconstruction of housing and infrastructure damaged by the powerful hurricanes in September 2017, given that such monies have been largely held up by bureaucratic wrangling between federal agencies, such as FEMA and the U.S. Department of Housing & Urban Development (HUD), and the commonwealth government.
In an interview with Caribbean Business, Alejandro J. Abrams, president of the Associated General Contractors of America, Puerto Rico Chapter, said the number of employed construction workers had increased from about 20,000 to more than 50,000 with post-hurricane repairs, but had dropped back to about 30,000 in the last few months. He attributed the slowdown to the gap in construction activity since the end of the first phase of reconstruction.
“Gov. Wanda Vázquez is developing efforts as never before to propel economic activity, efforts that will be positively reflected in the next reports,” EDB President Luis Carlos Fernández Trinchet said in a statement. He said these efforts involve the arrival of Community Development Block Grant-Disaster Recovery (CDBG-DR) Program funds, the implementation of “strategies for economic development” for small and midsize businesses and through the Opportunities Zones program, as well as other housing programs, including aid to potential homebuyers “who work in critical tasks.”
Fernández noted that the EDB-EAI increased 5.8 percent during fiscal year 2019, which ended June 30, the first positive growth after six-consecutive declines. He added that the index rose 1.7 percent between January and July this year.
The new EDB chief said that, in contrast, fiscal year 2018, which encompassed the immediate post-hurricane emergency, which lasted months, ended with a 6.4 percent decline, according to the EDB-EAI.
The EDB-EAI report states that when annualized, the index level is “highly correlated” with the real gross national product (GNP), although it is not a direct measurement of real GNP, which includes other factors not considered in the EDB-EAI. GNP is commonly calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents.
In fact, in another indicator of a stalling economy, retail sales fell by 6.3 percent in May compared with sales for the same month last year, according to the last monthly economic report to the governor, issued in August.