Sunday, July 5, 2020

THINK STRATEGICALLY: Government Employees, Keeping Your Job is Your Bonus

By on May 11, 2020

A merry-go-round is seen at Puerto Rico Capitol grounds in December 2017. (CB)

This past week, Sen. William Villafañe, who is a former La Fortaleza chief of staff, proposed to amend Act 66 of 2013 to grant a bonus of up to $500 “to all government employees who have worked” during the lockdown decreed March 15 to stop the spread of the novel coronavirus in Puerto Rico. This measure was introduced for the Senate’s consideration the very same day the U.S. Labor Department reported that 33.4 million people, or 20% of the labor force, filed for unemployment, raising U.S. unemployment to 14.5%. 

Meanwhile, in Puerto Rico, there have been 219,110 unemployment claims filed, and unemployment is said to have surpassed 32.11%.

Let’s look at the numbers:

  • The Total Labor Force in Puerto Rico as of 04/25/2020 was 856,124
  • The Total Private Sector Labor force in Puerto Rico as of 04/25/2020 was 682,300
  • The Total Government Labor Force in Puerto Rico as of 4/25/2020 was 201,900
  • The Puerto Rico Department of Labor reported there were 219,110 initial jobless claims and 452,409 continued claims seeking unemployment benefits.
  • Using these numbers, there is 32.11% of the Total Private Sector labor force that is newly unemployed and 66.3% of the Total Private Sector Labor Force that continues unemployed. 

All 201,900 government employees on payroll have continued to receive their pay every 15th and 30th of the month. Close to 70% of all government employees have remained at home without working, only venturing to the supermarket or drugstore. We are not only paying their wages while not working, but also allow them to accumulate vacation and sick leave days. 

As if that were not enough, Villafañe wants to pay them an additional $500 bonus for being at home.

Since 2006, the private sector has been adjusting: absorbing more than 150 new tax laws; accepting the highest sales tax in the nation, 11.5%; and allowing the government to handle and mismanage our funds. Yes, our funds. You see, the government of Puerto Rico does not create any wealth, jobs or value. It spends and mismanages all the capital and wealth the private sector creates. So during those 14 years, more than 650,000 Puerto Ricans have been forced to leave the island. The government allowed its payroll to increase 6.5% every year since 1999, an increase just shy of $3.5 billion. 

While the private sector suffers as it adjusts to the pandemic, we have over 452,409 private-sector employees who are without jobs and most without the unemployment benefit checks that the Department of Labor was supposed to process. We want to send a message to Sen. Villafañe and any senator or politician who voted in favor of giving the government employees the $500 bonus. 

Right now, with all the suffering on the island, all government employees must understand that “Keeping Your Job is Your Bonus.” So please don’t seek a bonus this year, while the world is in crisis. We would like to see a little compassion and empathy towards the private sector, which creates all the wealth that the government is so quick to mismanage. 

So, government employees, make sure you understand that “Keeping Your Job is Your Bonus.” 

In the end, we must ask ourselves, are we practicing integrity to disburse bonuses while 66.9% of the Private Sector Labor Force is jobless, and 100% of the Government employees are receiving their checks?

The answer is quite apparent; this Senate bill should have never seen the light of day.

Week in markets: Wall Street and Main Street disconnected from economic reality

The week ended with a bang as the U.S. Stock Market ended with a solid rally. It seems that there is a disconnect between Wall Street and Main Street as all the economic data point to an economy that is in much worse shape than previously thought. We have seen how investors have seen their fortunes rise in the market significantly and further increased Friday with a rally in the stock market. 

The S&P 500 has recovered close to 50 percent of its losses, and the Nasdaq is already showing a year-to-date (YTD) return of 1.7%. We must not forget that between February 19 and March 23, the S&P 500 lost one-third of its value, and everyone was in panic mode. However, as soon as the Federal Reserve Bank announced that it would step in and use its vast power to allow for orderly market liquidity, by purchasing commercial paper, corporate bonds and other instruments, the sentiment turned optimistic. 

I offer everyone a warning, the economic problems that the coronavirus pandemic has created have long-term repercussions. Some will change for as long as a permanent solution to the coronavirus is found. Until then, airlines, cruise lines, hotels, restaurants, shopping malls  and other live venues will continue to experience transformative changes that may change the very nature of each business. Investors should beware. 

All these increases are happening as the U.S. Department of Labor reported that unemployment increased to 14.7%, the highest since World War II; Additionally, 3.169 million new unemployment applications, which rose to 33.4 million, or 20.2% of the U.S. workforce.

On to the markets. The Dow Jones Industrial Average closed the week on May 8 at 24,331.32, for a gain of 607.51 points, or 2.56%, and a YTD return of minus-14.7%. The S&P 500 closed at 2,929.80, gaining 99.09 points, or 3.5%, and a YTD return of minus-9.3%. The Nasdaq closed at 9,121.32, for a gain of 516.37, or 6%, and YTD return of 1.7%. The Birling Puerto Rico Stock Index closed at 1,339.50, dropping 6.06, or 0.45%, for a YTD return of minus-34.27%. 

Meanwhile, the U.S. Treasury’s 10-year note closed at 0.69%, up 7.81%, but yielding a YTD return of minus-1.3%. The U.S. Treasury’s 2-year note closed at 0.16%, a change of minus-20%, and a YTD return of -1.9 percent.  

What to Expect for the Week of May 11 to 15

This week, more than any other in our lifetimes, will depend on how well the re-openings proceed around the world. Expect the global economy and markets to be heavily influenced by the results, and investors must be vigilant of:

  • Corporate earnings reporting during the week
  • May 13, 9 a.m.: The Peterson Institute for International Economics (PIIE) will hold a virtual event with Federal Reserve Board Chair Jerome Powell, for remarks on current economic issues followed by a discussion with PIIE President Adam S. Posen. To add the meeting to your calendar, visit: https://www.piie.com/events/economic-update-fed-chair-jerome-h-powell
  • Central banks around the world host their regular meetings
  • Continued reporting of U.S. & European economic data

The Final Word: When lost, humans walk in circles 

All scientific studies show that when lost, humans walk in circles. Have you ever gotten lost when driving or in a forest, like El Yunque, or anywhere without any landmarks? If you did, you most likely went around in circles.

As this most recent crisis engulfed Puerto Rico, we noticed that many of our political leaders seemed lost and have been walking in circles. 

When people ask how Puerto Rico and its government became bankrupt, no one needs to look further than our political leaders and their imprudent actions, such as the famous $38 million test order or the enactment of legislation to give bonuses to government employees. 

Puerto Rico’s political leaders have lost a valuable opportunity during this crisis: to put Puerto Rico First. Before any of their political interests, they chose not to do so and continued walking in circles.

Francisco Rodríguez-Castro, president & CEO of Birling Capital, has more than 25 years of experience working with government, and multinational and public companies.

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