Puerto Rico’s economy remains stalled, as investors and business owners delay investments, due to the uncertainty of the disaster relief funds promised by President Trump.
Over the last five months, the island’s Economic Activity Index (EAI) has barely budged. When comparing November’s 2018 number to February, the difference in the index is of .08%. Since the data shows noisy numbers, especially after the annual revision, uncertainty has taken over.
In January the EAI had an increase of 0.2% with a 121.3, while in February it decreased 0.2% hitting 121.0. After the revision made by the Economic Development Bank of Puerto Rico (EDB), this last number was also seen in December 2018. “Months running from February to December 2018 were revised upwards” says the EDB, based on updated information given by the Bureau of Labor Statistics.
While electric generation increased and employment inched up in February, gasoline consumption declined and cement sales plunged 3.2%.
“It surprised me,” said economist Carlos Soto Santori, “we are seeing a reduction in cement sales.” Economist expected this indicator to show positive numbers, because the island is still under construction after the impact of hurricanes Irma and María.
The uncertainty of not knowing the arrival date of the $91 billion in allocated aid, has caused reactions on investors. Businesses have stopped making big investments until they feel secure that the federal government will release the amount of money.
The continuous reminders from Governor Ricardo Rosselló to the White House, regarding the delay in hurricane relief funds, hasn’t helped. The tension between the US territory and Trump’s Administration is more than clear.
“The people of Puerto Rico are GREAT, but the politicians are incompetent or corrupt,” wrote President Trump on Twitter, “so many wonderful people, but with such bad Island leadership and with so much money wasted,” added Trump.
Later on, these accusations were backed up by a document published in the White House’s website that show cases of financial mismanagement in Puerto Rico. “What Trump is saying is partly true,” said economist José Alameda.
Last week, news about some irregularities in educational contracts, led to a federal investigation towards Puerto Rico’s former Secretary of Education, Julia Keleher.
Economist conclude that these situations not only bring uncertainty to foreign investors, but to local business owners.
“Investors will hold up,” said economist Heriberto Martínez. He made it clear that if business owners don’t feel secure that the local government has a strong fiscal plan or that the U.S. government will release the recovery funds, the island’s economy could keep contracting. “They stop buying cement and equipment,” added Martínez.
Gustavo Hermida, contractor and owner of the company CIC Construction, saw an increase in workflow right after the hurricane, but he expects more. “Puerto Rico’s reconstruction is barely starting,” said Hermida.
Regarding materials and cement, CIC Construction tries to plan ahead, but it all relies on the industry’s behavior. “We buy materials depending on the workflow,” added Hermida.
Cement sales have decreased in the last five months, but contractors see these numbers in a better way. “We come from years of recession” said Hermida, who lived the plunge this sector registered in 2011. After the hurricane, his company experienced a 40% increase in work volume. “We have doubled our workforce,” added Hermida.
Although other EAI components, like non-farm payrolls, have increased, better numbers should start showing, once those recovery funds arrive in Puerto Rico. But until then, economists are not expecting any growth in the island’s economy.