Tuesday, September 22, 2020

Puerto Rico Economic Activity Index suffers sharp contraction due to Covid-19

By on August 27, 2020

Falls by double-digits in May, June; gasoline consumption, employment indicators hit hard 

SAN JUAN – Puerto Rico’s economy suffered a dramatic contraction as a result of the Covid-19 pandemic emergency, with the slump reaching double-digit figures in May and June compared to the same months last year, according to the latest Economic Development Bank’s Economic Activity Index (EDB-EAI) released Thursday. 

The index, a leading indicator of the island’s economy, registered 108.8 in June after a 109.7 reading in May—figures that represent decreases of 10.8 percent and 10.2 percent, respectively, when compared to June and May of 2019. The index declined by 0.8 percent in June and 3.5 percent in May when compared to the previous months. 

The annualized double-digit reductions in the EDB-EAI—the sharpest since hurricanes Irma and Maria struck the island in September 2017—constitute the third and fourth drops in the index this year, according to the report, which states that the annualized decreases in the index for March and April were 2.4 percent and 7 percent, respectively. 

“This outcome in the Island’s economic activity follows the many local and international shifting challenges entailed by the COVID-19 global pandemic,” the EDB report states. “The EDB-EAI [year-to-year] percent 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 other non-emergency related endeavors, as of March of 2020.” 

Puerto Rico’s economy, as measured by the EDB-EAI, contracted by 2 percent in fiscal 2020, which ended on June 30, after climbing 6.1 percent in fiscal 2019, which had been the first yearly positive growth after six consecutive declines, according to the EDB report.  

Index readings reached 1.6 percent growth in calendar year 2019, but fell by 4.9 percent during the period between January and June of this year. The report attributed this last drop to “the January 7th, 2020 earthquakes and its related aftershocks, compounded by the COVID-19 global pandemic emergency stresses on economic activity.” 

Slump seen in key indicators 

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, gas consumption and total nonfarm payroll employment, were heavily impacted by the Covid-19 slump. 

Gasoline consumption in May totaled 59 million gallons — 10.7 percent below the amount consumed in April, and 22 percent less compared to May 2019. Moreover, such fuel consumption dropped to 52.1 million gallons in June or by 11.7 percent on a month-to-month basis, and by 30.1 percent in an annualized basis. 

Total non-farm payroll employment on the island averaged 781,400 employees for May and 800,900 employees during June – figures that represent increases of 2.3 percent and 2.5 percent, respectively, on a month-to-month basis, but constitute annualized reductions of 11 percent for May and of 8.9 percent for June, according to the EDB report. 

In contrast, the indicators for cement sales and electric power generation increased during the period. 

In preliminary report figures, electric power generation for May totaled 1,579.5 million kWh — a 4.5 percent increase in a month-to-month basis, and an annual upturn of 1.1 percent. For June, power totaled 1,604.2 million kWh, or a 1.6 percent increment on a month-to-month basis, and a 1.2 percent growth rate when compared to the same month from the previous year. 

Cement sales totaled 1.3 million 94-pound bags for May, constituting a 191.1 percent increase on a month-to-month basis, according to the EDB report, which states that such sales rose by 21.9 percent when compared to May 2019. During June, sales of 94-pound bags of cement reached 1.4 million, representing a 7.2 percent increase on a month-to-month basis, and a 19.1 percent climb when compared to June 2019. 

On March 15, Gov. Wanda Vázquez Garced issued an executive order ordering the closure of nonessential businesses, which excluded supermarkets, pharmacies, gas stations, banks and those related to food distribution, as an emergency measure to control the spread of the usually deadly novel coronavirus among the island’s residents.  

The order—which included the shuttering of places such as movie theaters and shopping malls, as well as a 7 p.m.-to-6 a.m. nightly curfew—was renewed every 15 days until May 25, when the governor started to gradually lift the curfew/lockdown measures, until many of the severest measures were removed by mid-June, allowing the opening of business establishments, albeit with capacity restrictions and required face-mask wearing.

However, Vázquez has been reinstating many restrictions since July 17, after medical experts alerted to the most serious spike in cases since the beginning of the crisis. 

The EDB-EAI had been decreasing on an annual basis before the 2017 hurricanes 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 of last year, 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 in early 2019. 

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.