u THE PUERTO RICO ECONOMY 1-2 u PUERTO RICO ECONOMIC INDICATORS 3-4 u UNITED STATES ECONOMY 5-6 u US ECONOMIC INDICATORS 7 Econews ISSUE 4 VOLUME 35 DECEMBER 2013 Puerto Rico The Economy MARCH 2010 • Not much changed in the last quarter of 2013. It was a continuation of the economic and financial issues of the previous quarters: increasing concerns about the public debt, the financial capacity of the government, an economy that showed signs of continued deterioration. US investors in municipal bonds were demanding higher returns and the rating agencies maintained pressure on Puerto Rico. By early December, the S&P Municipal Bond Puerto Rico Index had fallen 22.0%. 1 • The goverment continued to face difficulties in accessing the bond markets, having to postpone until early 2014 a fresh issue of debt. 2 This is an scenario of a continuation of the volatility that characterized the municipal bond market in 2013. 3 During the first half of 2014, PR has coming due on near term debt maturities of at least $2,000 million. 4 • The credit ratings warnings issued by Moody’s and Fitch in late November and early December, putting P.R.’s bonds on review for downgrades, have added more pressure to an already uncertain panorama. They also downgraded the ratings of a series of government and public corporation bonds, some to speculative grades. • A new measure, proposed in early December, will introduce a municipal version of the COFINA bond. This will allow the municipalities to issue sales tax-backed bonds, together with a “temporary” diversion to COFINA of the part of the Sales Tax that goes to the municipalities and will be considered in the new legislative session starting in January. They are expected to increase the credit margin of the government as it goes to the bond market. • As to the economy, maybe with the exception of the net revenues to the General Fund, which have increased due largely to the new tax on gross sales of companies (the so-called Patente Nacional), and inflation, the performance during the fourth quarter is still lackluster. MANUFACTURING The months of October and November of the fourth quarter saw a rise in the PMI Index of 8.2% from the previous quarter, and 7.7% year-to-year. The Index averaged 52.6 from 48.6 in the third quarter, thus, pointing to an expansion in activity during the quarter. The index rose 1.9% in November, from 2.4% in October, and 14.9% year-to-year. That increase was led by a significant rise in the Production Index of 51.0%, and in the Employment Index of 24.0% year-to-year. 5 The New Orders index rose 13.0%, and was above the expanson level of 50 (51.7), suggesting a continuation of expansion in activity in the coming months. EMPLOYMENT Nonfarm salaried employment continued to decline during the two months of the fourth quarter, but the pace slowed in November. Employment declined 5.1% year-to-year, as private employment fell 3.7%, translating into a loss of 48,400 jobs, of which 52.5% came from the private sector. In November, though, nonfarm salaried employment increased 0.1% led by a rise in private employment of 0.6%, the first month- to-month increase since August. Still, on an accumulated basis (up to November), nonfarm salaried employment was 3.5% below its level in the same period in 2012. The unemployment rate remained unchanged in the first two months of the fourth quarter, 14.7%, slightly up from 14.0% in the third quarter, and higher than the average for most of 2013. The labor force participaton rate moved slightly up during the period, to 41.2%, but stil way below the pre-contraction level of 48.9% in 2006. ECONEWS is a quarterly publication of the Puerto Rico Manufacturers Association. It is prepared by Estudios Técnicos, Inc. The views herein do not necessarily represent the Association’s official position. Purchasing Managers Manufacturing Index (Monthly, NSA) Nonfarm Salaried Employment (In th’s)
Transcript
u The PuerTo rico economy . . .1-2
u PuerTo rico economic indicaTors . . . . . . . 3-4
u uniTed sTaTes economy . . . . .5-6 u u .s . economic indicaTors . . . . . . . . . 7 Econews
ISSUE 2 VOLUME 32 MARCH 2010ISSUE 4 VOLUME 35 DECEMBER 2013
Puerto Rico The Economy MARCH 2010
• Notmuchchanged in the lastquarterof 2013. It was a continuation ofthe economic and financial issuesof the previous quarters: increasingconcerns about thepublic debt, thefinancial capacityof thegovernment,an economy that showed signs ofcontinueddeterioration.US investorsinmunicipal bondsweredemandinghigherreturnsandtheratingagenciesmaintainedpressureonPuertoRico.ByearlyDecember,theS&PMunicipalBond Puerto Rico Index had fallen22.0%.1
• The goverment continued to facedifficulties in accessing the bondmarkets, having to postpone untilearly 2014a fresh issueofdebt.2 Thisis an scenario of a continuation ofthe volatility that characterized themunicipalbondmarketin2013.3Duringthefirsthalfof2014,PRhascomingdueonneartermdebtmaturitiesofatleast$2,000million.4
• Thecredit ratingswarnings issuedbyMoody’sandFitchinlateNovemberandearlyDecember,puttingP.R.’sbondsonreviewfordowngrades,haveaddedmorepressuretoanalreadyuncertainpanorama.Theyalsodowngradedtheratingsofaseriesofgovernmentandpublic corporation bonds, some tospeculativegrades.
• A newmeasure, proposed in earlyDecember,will introduceamunicipalversion of the COFINA bond. Thiswill allow themunicipalities to issue
sales tax-backedbonds, togetherwitha “temporary” diversion to COFINAofthepartoftheSalesTaxthatgoestothemunicipalitiesandwillbeconsideredinthenewlegislativesessionstartinginJanuary.Theyareexpectedto increasethecreditmarginofthegovernmentasitgoestothebondmarket.
• As to the economy, maybe with theexception of the net revenues to theGeneralFund,whichhave increasedduelargely to the new tax on gross salesof companies (the so-called PatenteNacional),andinflation,theperformanceduringthefourthquarterisstilllackluster.
MANUFACTURING ThemonthsofOctoberandNovemberof
thefourthquartersawariseinthePMIIndexof8.2%fromthepreviousquarter,and7.7%year-to-year.TheIndexaveraged52.6from48.6 in the thirdquarter, thus,pointing toanexpansioninactivityduringthequarter.
The unemployment rate remainedunchanged in thefirst twomonthsof thefourthquarter,14.7%,slightlyupfrom14.0%in the thirdquarter, andhigher than theaverage formostof 2013.The labor forceparticipaton ratemovedslightlyupduringthe period, to 41.2%, but stilway belowthepre-contraction levelof48.9% in2006.
ECONEWS is a quarterly publication of the Puerto Rico Manufacturers Association. It is prepared by Estudios Técnicos, Inc.
The views herein do not necessarily represent the Association’s official position.
Purchasing Managers Manufacturing Index (Monthly,NSA)
Nonfarm Salaried Employment(Inth’s)
ECONEWSPuerto Rico EconomyPage | 2
December 2013
Theemployment-to-population ratio (theproportionof theworking-agepopulation16+years),was35.2%,upfrom34.0%inthethirdquarter.
Notwithstanding the slightmonth-to-month improvement in October andNovember, the number of salaried jobslostasaresultofthecontractionremainedhigh.Between2007andNovemberof2013,thenumberofnet job losseswas140,980,ofwhich 62.0% corresponded to privateemployment.
Employment in manufactur ingcontinuedonadownwardtrend,althoughitregisteredanimprovementinOctoberandNovember.DuringOctoberandNovemberemploymentdeclined4.4% year-to-year, alossof3,500jobs.InNovember,employmentincreased0.9%month-to-month,from1.1%inOctober,butdeclined3.2%year-to-year.ThatimprovementinOctoberandNovemberdidnotchangemuchthecontinuingpanoramaofjoblossesinthesector.Onanaccumulatedbasis, employmentdeclined6.5% year-to-year,translatingintoanetlossof7,000jobs.
Onanaccumulatedbasis, revenues incalendar 2013were 5.1% over 2012,whilereceipts fromLaw154corporations,whichaccounted for 18.6% of total revenues,declined7.5%. For thefirsthalfof currentfiscal 2014, net revenueswere 15.3% upyear-to-year, and those from all other
threebigchallenges:thatofthepublicdebt,reducingfurtherthestructuraldeficit,andachievingeconomicgrowth.Managementofthepublicdebtisofparamountimportance,given the recentwarningsof the ratingagenciesMoody’sandFitch.
Atitslatestreading(October2013),ETI’sleadingindexremainedinnegativeterritory.Onaquarterlybasis,theindexdeclined5.6%inthethirdquarterof2013,and4.6% inthefourthquarter, year-to-year,with the indexforthefourthquarterdeclining0.7%fromthepreviousquarter,afterremainingunchangedinthepreviousquarter.6
Theindexstillcontinuesonadownwardtrend, albeit at a somewhat slower pace,year-to-year,continuingtoforecastnegativegrowth for thenext sixmonths (first twoquartersof2014).
Thefirsthalfof 2014will bedecisive,in termsof increasing confidence in PR’smanagementofitsfiscalsituation.Thiswillbeachievediftherevenue-generatingmeasuresachievetheirfiscaltargets,iftheplanforanewbondissueisreceivedpositivelybyinvestors,andifthestructuraldeficitisreducedfurther,with the fiscal year 2014 closingwith analmost-balancedbudget.Theneedtoadoptaneconomicplanorstrategythatwouldsetthepathforasustainableeconomicrecoveryisessential,asaremeasuresto“jumpstart”theeconomy.
2. R. Slavin (2014). “PuertoRico Plans to Sell by EndofFebruary,”TheBondBuyer,(Thursday,January2).At:http://www.bondbuyer.com/issues/123_2/puerto-rico-plans-to-sell-by-end-of-february-1058655-1.html.
5. According to theEstablishmentSurvey,manufacturingemployment (seasonally adjusted) declined 3.2% inNovember,year-to-year.
6. Theindex(1990=100)isdesignedtopredictgrowthoverthenextsixmonths.Itdoesnotadjustforinflationorpopulationgrowth, and isnot final for severalmonthsafterbeingpublished. Itconsistsofthefollowingmonthly indicators:manufacturinghours,numberofproductionworkers inmanufacturing,U.S. interest ratespread,U.S. consumersentiment(UniversityofMichigan),unemploymentinsuranceclaims,cementsales,totalconsumptionofelectricity,andexportsofmerchandise.Anautoregressivemodelisusedtoestimateanindicatornotavailableatthetimeofpublication.
Net Revenues to the General Fund
Inflation in Puerto Rico(December2006=100)
Employment in Manufacturing Industries(Monthlyinthousands)
ETI Index of Leading Indicators, 1991-2013
ECONEWSPuerto Rico Economy
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December 2013
Puerto Rico Economic Indicators
Total Employment and Unemployment Rate(December2006=100)
Consumer Price Index
Net Revenues to the General Fund
Employment
Consumer Price Index
Fiscal Revenues
ECONEWSPuerto Rico EconomyPage | 4
December 2013
Puerto Rico Economic Indicators
Cement Production
Retail Sales
Construction
Retail Sales
Exports and Imports
Manufacturing
Exports and Imports
Average Hourly Wage ($)
December 2013
ECONEWSUnited States Economy
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United StatesThe Economy
Slower Q4-2013, due to the partial federal government shutdown, and little change for 2014 outlook.
• Finalnumbersarenotavailableyetforthefourthquarter,buttheconsensusestimates that real GDPwill grow1.9%,fromarevised4.1%inthethirdquarter,placing2013atanestimated1.7%.Growthinthefourthquarterisestimatedtobeduetoanincreaseinpersonalconsumptionexpenditures,at2.3%,abovethe1.4%inthepreviousquarter.
• Theoutlook forgrowth in the firstquarter of 2014 and during theyear is estimated at 2.5% in bothcases, accelerating to 2.7% in thesecondquarter.According tootherforecasters, realGDPgrowth in thefourthquarterisexpectedat1.8%,and2.6%for2014,thesameasthreemonthsago.1Growth in thefirstquarterof2014couldbehamperedifCongressdoes not extend the EmergencyUnemployment Compensat ionprogramthatexpiredonJanuary1st.
• Aftertwomonthsofpessimism,asaresultofthepartialshutdowninthefederal government lastOctober,and the deadlock on the budgetnegotiations, consumer confidencerebounded inDecember,with theindex increasing to 78.1 from72 inNovember. Their appraisal of theircurrentconditions improved,andso
EMPLOYMENT During the twomonthsof the fourth
quarter, nonfarmemployment continuedto rise, increasing 1.7% year-to-year. Thenumber of jobs created during the twomonthswas403,000, slightly less than inthesameperiodin2012,butmaintiningtheupward trend in thepreviousmonths.OnanaccumulatedbasissincetheendoftheGreatRecession,when8.7millionjobswerelost, a totalof 7.4 jobshavebeenadded,anditisexpectedthatduring2014over2.0millionjobswillbecreated,compensatingforthelossofjobs.
Growth in employment ocurred inhealth care, retail trade, transportationandwarehousing,andfoodservices,whileemployment in information declined.Manufacturingalsoregisteredan increasein employmentof 43,000during the twomonthsofthequarter,mostlycomingfromfoodandmotorvehiclesmanufacturing.
Theunemploymentrateaveraged7.1%duringthetwomonths,remainingatalmostthesame level fromthepreviousquarter.Theparticipationrateedgedupslightlytoanaverageof62.9%,from63.0%inthethirdquarter, but still remaining at its lowestlevel in over 30 years. The employment-to-populationratio (theproportionof theworking-age populationwith a job) hasremainedpracticallyunchanged(58.0%)forthepastseveralmonths.
did their expectations. Their favorableviewoneconomicandlabormarketcondi-tions,andagreaterdegreeofconfidencein futureeconomic conditions, contrib-utedtoamoreupbeatmood.Still,forthefourthquarterthelevelofconfidencewasbelowthatinthepreviousquarter,asthepessimisminOctoberweightedheavilyinoverallconfidence.
PRODUCTIONManufacturing grew inDecember at
the second-fastestpace inmore than twoyears,fueledbyagaininorders,increasing13.5%year-to-year,from15.8%inNovember.The Institute for SupplyManagement’smanufacturing index eased slightly to 57fromthepriormonth’sreadingof57.3,butstillabovethelevelof50indicatinggrowth.NeworderswerethestrongestsinceApril2010.During the fourthquarter the indexaveraged 56.9, up from55.8 in the thirdquarter,maintainingasteadyincreasesincethesecondquarteroftheyear.
SinceOctoberindustrialproductionhasincreased,withtheindexrisinganaverageof 3.2% year-to-year duringOctober andNovember.Industrialproductionsurpassedfor thefirst time itsDecember 2007 level.The increasehasbeen ledbya rise in themanufacturing of consumer goods andbusinessequipment.Capacityutilizationfortheindustrialsectorroseanaverageof0.7%year-to-yearduringOctoberandNovember.
Quarterly U.S. GDP RealGrowthandExpected,2010-14(SAAR)
Monthly Changes in Employment(SeasonallyAdjusted)
U.S. Consumer Sentiment Index
ISM Index of Manufacturing Activity
U.S. Industrial Production Monthly Index(2007=100,SA)
December 2013
ECONEWSUnited States EconomyPage | 6
toshiftin2014,reversingthetrendsofthepastfiveyears.Whilenon-OECDeconomieswill still outpace thoseof theOECD, thegapwill be the smallest since theglobalfinancial crisis. In real terms, theU.S.willaddmoredollars’worthofGDPtotheglobaleconomythanChina,CanadawilladdmorethanBrazil,andFrancemorethanNigeria.8
Another important developmentglobally is that of the negotiations onthe Transatlantic Trade and InvestmentPartnership(TTIP).OnDecember20ththeU.S.andtheEUconcludedthethirdroundofnegotiations,whichstartedinJuly.TheTTIP is a bilateral free-trade agreement(FTA) that aims to eliminate trade tariffsandreducenon-tariffbarriers(NTBs)suchasarbitrarydifferences in regulationsandindustry standards, for goods, servicesandforeigndirectinvestment(FDI).Itwillcreatetheworld’s largestfreetradearea,astheU.S.andtheEUaccountforover40%ofglobaltradeandnearlyhalfoftheworldGDP.TheU.S.manufacturingsectorthatwillbenefitthemostisthatofmotorvehicles,whichcurrentlyfacesan8%EUtariff(tradeweighted)aswellashighNTBs(Non-tariffbarriers), followed bymetals andmetalproduction,andchemicals.9
the first quarter of 2014, as thehousingmarketcontinuestoimprove.
U.S. /GLOBAL OUTLOOKOna cautiousnote thebeginningof
2014 provides grounds for beingmoreoptimisticfortheU.S.economy.RealGDPgrowthisexpectedtobebetween2.5%and2.6%,andacontinuingimprovementinthelabormarketisforeseen.Anissueforearly2014,whichwillalsoimpactoureconomy,is theproposed increaseof theminimumwage.TheU.S.Senateissoonexpectedtoconsideraproposaltoraiseitfrom$7.25to$10.10inthreeannualincrementsandthenindex it to inflation. Theproposal— theFairMinimumWageActof2013 (FMWA),introducedbySenatorTomHarkin(D-IA)—alsowouldraisethesubminimumwagepaidtothosewhoalsoreceivetips,whichhasbeenfrozenat$2.13forovertwodecades.Ifenactedsoon,theminimumwagewouldriseto$8.20earlyin2014,$9.15inearly2015,and$10.10by2016.6
Globally,accordingtotherecentWorld Economic Outlook of the InternationalMonetary Fund, “the latest indicatorspointtosomewhatbetterprospectsinthenear termbutdifferentgrowthdynamicsbetween themajor economies”.7 GlobalrealGDP is expected to growby 3.6% in2014,0.2percentagepointslowerthantheirJulyforecast,withgrowthinChinaandtheU.S.providingtheimpulse.Theeurozonewillfinallymoveintopositiveterritory,withreal growth expected at 1.0% from -0.4%in2013.Growth inemergingmarketsanddevelopingeconomieshas slowed, fromanestimated increaseof 5.5% for 2014 inJuly, theyarenowexpectedgrow5.1% in2014,ledbyChina,althoughitwillgrowataslowerpacethanin2013,7.3%.
low,andthetrendcontinuedintothefourthquarter.DuringOctoberandNovember itaveraged1.1%,andcoreinflation(excludingfood and energy) 1.7%, practically at thesame levelsof the thirdquarter.2 In 2012theinflationratewas2.1%.Astheeconomycontinues to improve, it is expected thatinflationwill rise in the comingquarters,butnotbymuch,with theCPI increasinganaverageof2.3%in2014,onthebasisofareboundinenergyprices.3
INTEREST RATES Asexpected,atitsDecembermeeting
the Federal Open Market Committee(FOMC) of the Federal Reserve finallyannnounced the long-awaited taperingof its LargeScaleAssetPurchases (LSAP)program. Itwas adopted two years agoasaway to stimulate the recoveryof theeconomy.TheFOMCagreedtoreducethepaceofpurchasesby$10.0billionmonthlyto$75.0billionfrom$85.0billionbeginningin January, and it is expected that itwillconcludebythefourthquarterof2014.4
TheCommitteealsoreinforcedthattheFedFunds ratewill remainnear zerowellpastthe6.5%unemploymentratethreshold,with the first rise expected in the thirdquarterof2015.
ThedecisionbytheFOMCwillcontributetoincreasesinlong-terminterestrates,butnosuddenincreasesareforeseen.Duringthefourthquarter,theprimerateremainedat3.25%,andisexpectedtoincreasemarginallyto3.3%inthefirstquarterof2014,whiletheeffectivefundsrateisestimatedtoremainat0.1%.5Ontheotherhand,theaverageratefor conventional 30-yearmortgage loans,that during the fourth quarter averaged4.3%,isexpectedtoincreaseto4.6%during
Selected Interest Rates (MonthlyAverage)
World Economic GrowthForecast2011,2012and2013
Annual Percent Change in CPI(Y/y,seasonallyadjusted)
ECONEWSUnited States EconomyPage | 7
United StatesEconomic Indicators
December 2013
Gross Domestic Product(% Change From Preceding Period)
