Transcript PR Economic Outlook 3Q 2009

Puerto Rico’s Economic
Outlook 3Q 2009
November 30, 2009
Content
• Global economic conditions
• U.S. economic outlook
– A double deep recession
– The jobless recovery
• P.R. economic trends
– Macroeconomic indicators
– Industry analysis
– The banking industry
• Government initiatives
– “Ley de Cierre”
– New permits office
• GNP forecast
The global economy
• India, China and the United States are leading the world economy’s
recovery but recovery is “still too timid” to halt the continuing rise in
unemployment, according to Organization of Economic Cooperation
and Development’s (OECD) latest economic outlook released on
Thursday.
• China, which is set to growth by 8.3 per cent in 2009 and 10.2 per
cent next year, is leading the global recovery, helped by its limited
direct exposure to the financial crisis and by a massive stimulus
package.
• The Indian economy, projected to grow by 6.1 per cent in 2009-10
and 7.1 per cent next year, has weathered the global downturn
relatively well, it said.
U.S. economy
• The U.S. Economy grew at a 3.5% annual rate in the third
quarter, marking the end of four straight quarters of
contraction.
• The upturn of the economy was based mainly on positive
contributions from its biggest component; Private
Consumption Expenditures.
• Real Personal Consumption expenditures grew 3.4% in the
third quarter, compared to a 0.9% decrease in the second.
This increase in consumption was propelled by strong growth
in auto sales, which by itself contributed 1.66% to the growth
in GDP.
The U.S. recovery
United States Domestic Product
6
3.2%
4
2
3.6%
3.5%
2.1%
1.2%
1.5%
0
-2 2007q1
-4
-6
-8
2007q3
2008q1
-0.7%
2008q3
2009q1
-0.7%
2009q3
-2.7%
-5.4%
-6.4%
Assuming that there is no second fiscal stimulus package in the US and that the Federal
Reserve (the Fed, the US central bank) begins to tighten monetary policy in the second half
of 2010, the “Economist Intelligence Unit” expect US GDP growth to weaken to 1.3% in
2011.
The labor remains weak
Unemployment rate
%
12
10
8
7.6
8.1
8.5
8.9
Feb-09
Mar-09
Apr-09
9.4
9.5
9.4
9.7
9.8
10.2
6
4
2
0
Jan-09
May-09 Jun-09
Jul-09
Aug-09 Sep-09
Oct-09
Another reason for the skepticism regarding the sustainability of the U.S. recovery is the high
unemployment rate. The unemployment currently stands at 10.2% and could top 13%.
Consumer spending, which accounts for almost 70% of GDP, will remain constrained as long
as unemployment remains at current levels.
Puerto Rico’s economic outlook
•
Puerto Rico's economy, which has been contracting steadily since the fiscal year
2006/07, remains extremely weak despite a modest improvement in global economic
conditions in recent months.
•
The latest economic data indicate that conditions remained poor in the first half of
2009. The decline in construction activity continued to deepen in the first half of 2009,
underscored by a 30% year-on-year decline in the number of construction permits
approved.
•
Following a 3% year-on-year decline in the first quarter of 2009, retail sales were
down by 3.3% in May, mainly reflecting weaker sales of motor vehicles.
•
Moreover, tourism data show that there was a 4.8% decline in the number of
registered hotel guests during the second quarter of 2009. In the first half of 2009
consumption of electricity fell by 5.6%, indicating severe weaknesses in the overall
economy.
Total employment
September
Total employment (thousands)
The unemployment rate was 16.4% in
September, up 0.6% from August. The
number of unemployed workers rose to
217,000, the Department of Labor reported.
1,350
1,300
1,289
1,254
1,250
1,212
1,200
1,200
1,150
1,103
1,100
1,050
1,000
2005
2006
2007
2008
2009
The level of unemployed is the most for a
September and the unemployment rate of
16.4% is the highest since 1993. The
unemployed level is 9,000 more than the
one registered in August and 54,000 more
than a year earlier.
Unemployment Rate for September
18
16
14
12
10
8
6
4
2
0
16.4
10.7
10.9
11.1
2005
2006
2007
12
2008
2009
Bankruptcies
• Bankruptcies continue to spiral
upwards. Consistent with the trend
registered since the recession began,
declared bankruptcies rose 21% in
September. The registered total for the
month was 1,015, while the same
month last year had 814 declared
bankruptcies.
Acumulated Bankruptcies
September 2009
10000
8,420
8000
5,719
6000
4000
3,682
2000
0
2006
• Regarding commercial bankruptcies,
El Boletín de Puerto Rico, reports over
645 filings. The majority of these are
in: construction contractors (46),
Restaurants (28), Cafeterias (22),
Beauty Salons (18) and auto repair
shops (18).
2007
2008
2009
Individual bankruptcies
September 2009
1200
1,015
1000
841
726
800
600
• Total unsecured debt rose to $686
million, while secured debt topped
$771 million. This brings the
September total to $1,439 million.
6,593
551
400
200
0
2006
2007
2008
2009
Retail sales
Retail sales
$ 25,000,000,000
$ 20,084,449,527
$ 19,790,441,589
January - July 2008
January - July 2009
$ 20,000,000,000
$ 15,000,000,000
$ 10,000,000,000
$ 5,000,000,000
$-
Retail sales remain very weak (-1.46%) due to high unemployment levels,
decreasing disposable income, and low consumer confidence. Almost every category
shows a negative trend, in particular long term goods such as new car sales (-13%)
and construction goods (-13%).
Retail sales
SIC
5211
5231
5251
5311
5331
5399
5411
5421
5511
5531
5541
5611
5621
5661
5712
5730¹
5812
5912
5940²
5944
Otros
Total
Compañia de Comercio y Exportación
Division de Economía
InfoVentas - Informe de Ventas al Detalle en Puerto Rico - Enero - Julio de 2009
Descripción
Ene.-Julio 2008 [R]
Ene.-Julio 2009
Madera,materiales de construcción y casas móviles
Pinturas,cristales y papel de empapelar
Ferreterias
Tiendas por departamento
Tiendas de variedades
Otras tiendas de mercancia en general
Tiendas de alimentos
Tiendas de carnes y mariscos
Vehiculos de motor nuevos y usados
Tiendas de efectos para automoviles y para el hogar
Estaciones de gasolina
Tiendas de ropa para jovenes y caballeros
Tiendas de ropa para damas
Tiendas de calzado
Mueblerias
Tiendas de radios,televisores y computadoras
Cafeterias y restaurantes
Farmacias
Tiendas que venden marteriales de oficina y juguetes
Joyerias
Todos los demas SIC's del sector al detal
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
553,498,850
65,689,787
516,946,180
3,517,308,606
71,828,400
342,666,850
3,277,684,201
7,846,771
1,554,661,843
892,149,643
1,740,126,834
91,402,357
144,918,475
203,438,189
412,707,382
585,505,036
2,272,630,912
2,183,762,991
192,278,124
150,419,208
1,306,978,889
20,084,449,527
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
480,965,339
58,459,703
471,495,020
3,635,928,930
60,329,657
344,226,982
3,243,542,859
8,374,800
1,342,369,227
898,304,304
1,697,081,941
90,830,604
120,101,086
198,983,708
375,931,636
543,252,433
2,321,318,187
2,359,714,843
168,129,769
142,399,159
1,228,701,400
19,790,441,589
Dif.Anual 09 - 08
(72,533,511)
(7,230,084)
(45,451,160)
118,620,324
(11,498,743)
1,560,132
(34,141,341)
528,029
(212,292,616)
6,154,661
(43,044,893)
(571,754)
(24,817,389)
(4,454,481)
(36,775,746)
(42,252,602)
48,687,275
175,951,852
(24,148,355)
(8,020,049)
(78,277,489)
(294,007,939)
Christmas sales
Christmas sales
October - December
$9,561,524,504
$9,600,000,000
$9,500,000,000
$9,400,000,000
$9,393,642,463
$9,304,062,539
$9,300,000,000
$9,200,000,000
$9,111,833,189.56
$9,100,000,000
$9,000,000,000
$8,900,000,000
$8,800,000,000
2006
2007
2008
2009
• Christmas retail sales are expecting to be below 2008 level.
• Higher unemployment, low consumer confidence, and the contraction
in credit is expected to affect Christmas sales.
• Retail sales are expected to be -5% down in 2009.
Construction industry
Construction permits value
$300,000 $277,074
$250,000
$196,682
$200,000
$164,616
$166,778
$140,075
$159,183
$121,749
$114,888
$114,041
$72,868
$162,302
$150,000
$91,291
$100,000
$135,700
$50,000
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The real estate crisis
New homes inventory
24,717
22,155
21,154
17,947
19,219
15,116
12,219
2002
2003
2004
2005
2006
2007
2008
The banking industry
Market capitalization
Financial Institution
Oriental Group
Banco Popular
FirstBank
Banco Santander
Doral
WesternBank
Eurobank
Total
7/31/2009 10/30/2009 Balance
$350
$231
-$119
$344
$1,560
$1,216
$294
$142
-$152
$121
$149
$28
$117
$177
$60
$33
$50
$17
$43
$15
-$28
$1,302
$2,324
$1,022
Net Income Applicable to Common Shares
Financial Institution
Banco Popular
FirstBank
Western Bank
Eurobank
Oriental Group
IIIQ
-$124.9
-$174.0
-$42.3
-$11.5
$20.1
IIQ
-$183.1
-$94.8
-$105.5
$3.0
$49.7
IQ
-$52.5
$6.7
$63.6
-$7.7
$23.5
Fiscal up date
Tax categories
Net fiscal revenues to the general fund
Income tax revenues
Corporate tax revenues
Sales tax revenues
Excise tax revenues
Dividend tax revenues
1Q FY2009 1QFY2010 Balance
$1,713,124 $1,716,747
$3,623
$598,390 $547,893
-$50,497
$402,684 $438,995
$36,311
$265
$255
-$10
$185,708 $185,626
-$82
$15,410
$7,683
-$7,727
%
0.21%
-8.44%
9.02%
-3.77%
-0.04%
-50.14%
•Throughout the first quarter of fiscal 2010, treasury revenues have continued
their downward trend. Although higher than most estimates, net revenues to the
general fund have remained flat during the first quarter even with the introduction
of several new special taxes implemented by the current administration.
•Property taxes, one of the tax groups increased by the Administration,
contributed $20 million in September.
Revenues to the general fund
Net Fiscal Revenues
$2,000,000
$1,713,124
$1,716,747
1Q FY2009
1QFY2010
$1,500,000
$1,000,000
$500,000
$0
Personal tax revenues
Personal income tax revenues
$700,000
$598,390
$600,000
$547,893
$500,000
$400,000
$300,000
$200,000
$100,000
$0
1Q FY2009
1QFY2010
Personal tax revenues decreased by 8.4% or $50.5 million. Increasing
unemployment rate is affecting this particular item.
Sales tax revenues
Sales Tax
Revenues for 1st Quarter of 2010
$300,000
$265,103
$255,875
2009
2010
$250,000
$200,000
$150,000
$100,000
$50,000
$0
Sales tax revenues were below expectations in September totaling $84, $3 million less than
estimates. It is important to recall that I.V.U revenues to the general fund will be substantially
reduced this year due to legislative amendments made to the COFINA law that stipulates that
2.5%, instead of 1%, out of the 4.5% state sales tax will go to the special fund.
Government economic actions
• The GDB held the Public Private Partnership summit in
October. High profile investors assisted and confirmed
their interest in Puerto Rico.
• At the end of the legislative session, the new permits
legislation and the amendment to the “Ley de Cierre”
were approved.
• The House of Representatives (Federal) approved the
Health Reform Bill, that includes Puerto Rico. That would
represent and inflow of 13 billion during 6 years.
Puerto Rico’s GNP
Puerto Rico's GNP growth
2.1%
2.7%
1.9%
0.5%
2001
2002
-0.3%
2003
2004
2005
2006
0.2%
2007
-1.9%
2008
2009
2010
-0.1%
2011
-2.5%
-5.5%
Historically, the local economy has been synchronized with the U.S. economic cycle. However, due to
the closing of numerous manufacturing plants as a result of the phasing out of Section 939, the effect of
the expansionary cycle of the U.S. is not as important as it was when Puerto Rico was a Strategic
industrial point of export towards the U.S. market. Towards the end of the industrial era, the economic
ties between Puerto Rico and the North American economy have occurred as functions of tourism,
finance flows, and federal transfers.
Final remarks
•
The end of the U.S. recession could spell trouble for the local economy. As mentioned
in the previous presentation, counter cyclical measures implemented by the U.S.
government such as low interest rates and heavy amounts of stimulus will be phased
out as the U.S. economy begins to stand on firm ground. Also, commodities such as
Oil and Gold have rebounded to 2007 levels, driving up the cost of electricity and
gasoline in the island, zapping consumers of disposable income and increasing the
cost of doing business in the island.
•
Historically, the local economy has been synchronized with the U.S. economic cycle.
However, due to the closing of numerous manufacturing plants as a result of the
phasing out of Section 939, the effect of the expansionary cycle of the U.S. is not as
important as it was when Puerto Rico was a Strategic industrial point of export
towards the U.S. market. Towards the end of the industrial era, the economic ties
between Puerto Rico and the North American economy have occurred as functions of
Tourism, finance flows and federal transfers.
•
This means that the government must do everything it can to accelerate its economic
projects and strategies in order to get out of the current recession and re-synchronize
our economy with the U.S. economic cycle.