Puerto Rico and the U.S. Virgin Islands
After Hurricanes Irma and Maria Jason Bram, Officer Research Economist
Economic Press Briefing: February 22, 2018
The views expressed here are those of the presenter and do not necessarily represent those of
the Federal Reserve Bank of New York or the Federal Reserve System.
Overview
• Economic and fiscal conditions in Puerto Rico and the U.S.
Virgin Islands (USVI) were dire even before hurricanes
Irma and Maria.
• We look at a variety of indicators to help gauge the hurricanes’
effects on these U.S. territories and their economies.
• Despite widespread devastation, the Puerto Rico economy has
shown some signs of resilience, whereas the USVI economy
has stabilized but has yet to show signs of a rebound.
• While the main focus here is on economic effects, it’s important
to note that the storms took a great toll in terms of loss of life,
physical destruction, health issues, and widespread suffering.
FEDERAL RESERVE BANK OF NEW YORK 1
Economic & Fiscal
Situation Leading
Up to the Storms
Puerto Rico Economy Weak Well Before Maria Indexes of Economic Activity, Employment, and Population
3 Source: U.S. Bureau of Labor Statistics, U.S. Census Bureau, Planning Board of Puerto Rico, and Moody’s Economy.com.
70
75
80
85
90
95
100
105
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Index (2006 = 100)
Population
Real GNP
Employment
Since 2006:
• Population down 12%
• Employment down 16%
• Real GNP down 15%
USVI Also Weak Well Before Irma & Maria Indexes of Economic Activity, Employment, and Population
4 Source: U.S. Bureau of Labor Statistics, USVI Bureau of Economic Research, World Bank, and Moody’s Economy.com.
70
75
80
85
90
95
100
105
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Index (2006 = 100)
Population
Real GDP
Employment
Since 2006:
• Population down 4%
• Employment down 15%
• Real GDP down 27%
Economic & Fiscal Conditions Before the Storms
• Puerto Rico
- The economy had already been in decline for over a decade.
- Public debt in 2016 was roughly 100% of GNP.
- The Island had defaulted on debt payments and could no longer borrow.
- In 2016, the U.S. Congress implemented PROMESA to restore long-term
economic growth and fiscal balance, creating a fiscal oversight board and
a bankruptcy-like process.
• U.S. Virgin Islands
- This economy had been depressed, largely due to the Great Recession
and the closure of the major Hovensa oil refinery in 2012.
- USVI were also under fiscal stress; while they have not defaulted on debt
payments, public debt in 2016 was roughly 72% of GDP, and they have
limited market access.
• These conditions exacerbate the already-difficult challenge of
recovering and rebuilding after Irma and Maria.
FEDERAL RESERVE BANK OF NEW YORK 5
Initial Impacts of the Storms
Fallout on Puerto Rico and the USVI
• Physical damage and loss of life - More than 1,000 deaths have been attributed to the hurricane in Puerto Rico.1
- Many homes and businesses were severely damaged.
- Major damage to water, telecom, transportation, and power infrastructure.
- Widespread agricultural devastation—80% of crops destroyed in Puerto Rico.2
• Population loss - There was a large outflow of residents to the mainland after the storm, exacerbating
the islands’ ongoing population decline of the past decade.
- It remains to be seen how many of these migrants have returned or will return.
• Economic disruption - In the first few weeks, there were widespread power and telecommunications outages,
fuel shortages, and transportation blockages.
- Many areas have gone without electricity and running water for months.
- Economic activity declined sharply in September and October.
7
1) “Estimates of excess deaths in Puerto Rico following Hurricane Maria” Alexis Santos & Jeffrey T. Howard (Dec. 2017)
https://osf.io/preprints/socarxiv/s7dmu
2) Attributed to Carlos Flores Ortega, Secretary of Agriculture for Puerto Rico
FEDERAL RESERVE BANK OF NEW YORK
Population Loss After the Storms Net Domestic Passengers to Puerto Rico, 12-Month Rolling Sum
Note: Airports are Luis Munoz Marin Intl Airport in San Juan, Mercedita Intl Airport in Ponce, and Rafael Hernandez Intl Airport in Aguadilla. Source: U.S. Bureau of Transportation Statistics and FRBNY staff calculations. 8
-250,000
-200,000
-150,000
-100,000
-50,000
0
50,000
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
12 months ending in Aug
U.S. Census Net PR Migration 2011-2016 Annual
Puerto Rico Net Airline
Passengers
12 months Ending in Nov
Between Aug. and Nov. 2017,
the net number of domestic
air passengers departing was
roughly 160,000 above trend.
Assessing Damage and Recovery:
Nighttime Lights
• Research1 shows that nighttime lights can serve as a proxy for
economic activity, though the relationship is not one-to-one—
particularly during a power outage.
• Nighttime light images can be used to gauge the loss and
subsequent restoration of power after the storms.
• Nighttime lights can provide some indication of which localities
were most affected, and how quickly they are recovering.
FEDERAL RESERVE BANK OF NEW YORK 9
1) “Newer Need Not be Better: Evaluating the Penn World Tables and the World Development Indicators Using Nighttime Lights”
(Maxim Pinkovskiy and Xavier Sala-i-Martin, 2016) http://www.nber.org/papers/w22216
Nighttime Lights in Puerto Rico
Source: Earth Observation Group; NOAA National Geophysical Data Center.
October August
January December
Ponce
Mayaguez
San Juan
Caguas
Aguadilla
Humacao
Vieques
Culebra
Arecibo
Ponce
Mayaguez
San Juan
Caguas
Aguadilla
Humacao
Vieques
Culebra
Arecibo
Ponce
Mayaguez
San Juan
Caguas
Aguadilla
Humacao
Vieques
Culebra
Arecibo
Ponce
Mayaguez
San Juan
Caguas
Aguadilla
Humacao
Vieques
Culebra
Arecibo
10
January Nighttime Lights Brightness as a Percentage of August Baseline
Source: Authors’ Calculations; Earth Observation Group; NOAA National Geophysical Data Center.
Ponce
Mayaguez
San Juan
Caguas Aguadilla Humacao
Vieques
Culebra
Arecibo
U.S. VIRGIN ISLANDS
St. Croix
St. Thomas
St. John
BRITISH VIRGIN
ISLANDS
Less than 50%
50% - 60%
60% - 70%
70% - 80%
80% - 90%
More than 90%
PUERTO RICO
As of January 2018, Puerto Rico on the whole
is 76% as bright as the August baseline. And
the U.S. Virgin Islands are 56% as bright.
11
Economic Outlook
After the Storms
How Does This Compare to Other Disasters?
• Economic effects of natural disasters share some
common elements: - Economic disruptions tend to be severe for 1-2 months but then dissipate.
- Subsequently, economic activity is boosted by clean-up, restoration, and
reconstruction efforts.
- Insurance payouts and federal aid further buoy spending and investment.
- In considering how Puerto Rico’s economy might be affected in the longer
run, this history can be a useful guide.
• Still, this disaster has unique features that complicate comparisons
with other natural disasters. - The power outage has been by far the most severe in U.S. history,
in terms of total customer-hours lost. - The dire fiscal situation in both territories before the storms is unprecedented.
- These and other issues make it harder to predict economic prospects.
FEDERAL RESERVE BANK OF NEW YORK 13
How Does This Compare to Other Disasters? Local Job Loss Following Natural Disasters, from Onset to Trough
+0.0%
-0.1%
-0.3%
-0.5%
-0.9%
-1.3%
-1.3%
-2.3%
-4.2%
-6.2%
-7.8%
-9.4%
-29.7%
Andrew-Metro Miami (Aug1992)
Blizzard-Philadelphia Metro (Jan1996)
Hugo-Puerto Rico (Sep1989)
Georges-Puerto Rico (Sep1998)
Harvey-Metro Houston (Aug2017)
Sandy - NY/NJ Coastal Counties (Oct2012)
Irma-Florida (Sep2017)
Ivan-Pensacola (Sep2004)
Maria-Puerto Rico (Sep2017)
Marilyn-US Virgin Islands (Sep1995)
Maria & Irma-US Virgin Islands (Sep2017)
Hugo-US Virgin Islands (Sep1989)
Katrina-Metro New Orleans (Aug2005)
For context, during the
Great Recession,
NYC saw a 3.3 percent
job loss over the
course of 10 months.
Source: U.S. Bureau of Labor Statistics, Haver Analytics, and Moody’s Economy.com. 14
Employment Paths Post Hurricanes Index (Month Before Hurricane = 100)
Source: U.S. Bureau of Labor Statistics, Moody’s Economy.com, and FRBNY staff calculations.
70
80
90
100
110
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Index (Month Before Hurricane = 100)
Months Before Hurricane Months After Hurricane
New Orleans (Katrina – Aug 2005)
U.S. Virgin Islands (Hugo – Sep 1989)
U.S. Virgin Islands (Marilyn – Sep 1995)
Puerto Rico (Maria – Sep 2017)
U.S. Virgin Islands (Irma/Maria – Sep 2017)
15
Jobless Claims Confirm Payroll Data Weekly Initial Jobless Claims in Puerto Rico Before and After Maria
0
2,000
4,000
6,000
8,000
10,000
Jul29 Aug12 Aug26 Sep09 Sep23 Oct07 Oct21 Nov04 Nov18 Dec02 Dec16 Dec30 Jan13
Actual Claims
Jobless Claims
Counterfactual
Estimated number of additional
jobless claims due to hurricane:
37,000 or 4.2% of employment
Jan6
Note: Since there was no significant time trend pre-storm, the counterfactual is set to the level from the same week of the prior year. Source: U.S. Department of Labor. Employment and Training Administration; Haver Analytics; Staff calculations. 16
Jobs Lost by Sector in Puerto Rico Aug-Oct Job Change vs. Aug-Dec Job Change
Source: U.S. Bureau of Labor Statistics and Moody’s Economy.com.
-16,000
-12,000
-8,000
-4,000
0
4,000
Leisure & Hospitality
Trade
Construction
Education & Health
Professional & Business
Manufacturing
August-October Change
August-December Change
17
Jobs Lost by Sector in USVI Aug-Oct Job Change vs. Aug-Dec Job Change
Source: U.S. Bureau of Labor Statistics and Moody’s Economy.com.
-2,000
-1,500
-1,000
-500
0
500
Leisure & Hospitality
Trade
Construction
Education & Health
Professional & Business
Manufacturing
August-October Change
August-December Change
18
Assessing the Economic Fallout
• Job losses in Puerto Rico (4%) and the USVI (8%), though far
less severe than after Katrina, are still substantial.
• Some businesses and homes had backup power, which may
have helped mitigate the economic effect somewhat.
• The job loss may understate the true economic cost because:
- At least some of those still employed likely suffered a drop-off in income.
- There may be additional unmeasured effects on the informal economy.
- We do not account for the value people place on quality-of-life issues.
FEDERAL RESERVE BANK OF NEW YORK 19
Conclusions
• Hurricanes Maria and Irma were overlaid onto already weak
economies, raising concerns about longer-term prospects for
the Puerto Rico and the USVI economies.
• Despite widespread devastation and the dire situation before
the storms, Puerto Rico’s economy has shown some signs of
resilience, while the USVI appears to be taking longer to recover.
• Looking ahead, the recovery will be affected by the degree of
out-migration, external aid, fiscal and other reforms.
FEDERAL RESERVE BANK OF NEW YORK 20
Appendix
U.S. Virgin Islands Jobless Claims Weekly Initial Jobless Claims in USVI Before and After Irma & Maria
Note: Since there was no significant time trend pre-storm, the counterfactual is set to the level from the same week of the prior year. Source: U.S. Department of Labor. Employment and Training Administration; Haver Analytics; Staff calculations.
0
200
400
600
800
1,000
1,200
Jul29 Aug12 Aug26 Sep09 Sep23 Oct07 Oct21 Nov04 Nov18 Dec02 Dec16 Dec30 Jan13
Actual Claims
Counterfactual Jan6
Jobless Claims
Estimated number of additional
jobless claims due to hurricane:
4,300 or 11% of employment
22
Population Loss After the Storms Net Domestic Passengers to U.S. Virgin Islands, 12-Month Rolling Sum
Note: Airports are Cyril E. King Airport in St. Thomas and Henry E. Rohlsen Airport in St. Croix. Source: U.S. Bureau of Transportation Statistics and FRBNY staff calculations.
-16,000
-12,000
-8,000
-4,000
0
4,000
8,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
12 months ending in Aug
12 months Ending in Nov
23
