Economist: 1st signs of ‘normalcy’ coming from unexpected places
One of the greatest challenges economists are having during this downturn is that it is not a “traditional boom-bust cycle,” economist Heidie Calero said in the May edition of the “Puerto Rico Economic Pulse” monthly bulletin published by her firm H. Calero Consulting.
“The ongoing situation is better described as a structural social and economic adjustment driven by both demographics and a reshaping of Puerto Rico’s productive base that will, undoubtedly, redefine what ‘normal’ means in Puerto Rico,” she said. “Both are partly dependent on each other but also respond to different contexts.”
Demographics, in particular, she said, are a “formidable analytical challenge as the economic consequences of changes in the island’s resident population are hard to even imagine.”
Meanwhile, the second issue, the “allocation of resources” question, will also play a key role in determining the island’s economic landscape in coming decades.
Stuck in neutral
Puerto Rico’s economy seems to have bottomed out in 2010, Calero noted.
Monthly data, such as retail sales and the economic activity index, suggests that the rate of contraction slowed, thus defining a “floor” from which to measure how much will have to be recovered to return to our cyclical height.
By the end of Fiscal 2011, the economy had shrunk by 12.1 percent compared to 2006 measured in inflation-discounted dollars, she added.
“Some have argued that this has constituted a depression, although judging by historical standards, the situation has a long stretch to go before warranting such a label,” she said. “The more likely scenario of a downward structural adjustment, however, is not easier to assess either.”
She attributed that challenge to variable such as shifting demographics, which make it “meaningless” to compare to any other past economic debacles. However, Calero predicted that growth rates should bounce back once the economy is up and running again.
The labor mess
The third and fourth indicators are the island’s workforce participation rate and labor force growth. Prior to the onset of the recession, the participation rate averaged 46.5 percent, while the labor forced expanded at a monthly average rate of 0.1 percent until it peaked in August 2005. After that, it contracted at a monthly average of -0.1 percent.
“A smaller labor force means less income and a smaller tax-base, the telltale signs of a shrinking economy. The difference in our case is that the smaller labor force includes not only disenfranchised workers but also many who left the island altogether, in many cases for good,” she said.
Women, who have been increasingly fueling the island’s labor force over the past three decades, will likely lead Puerto Rico’s labor recovery. So, a spike in the female labor force could be construed as a sign of recovery, or the fifth positive indicator.
Meanwhile, she said a drop in unemployment benefit claims, which is expected as the job market improves, represents the sixth indicator of improving conditions.
Finally, Calero concluded that while there are other variables that play into an economic upswing, they can not be calculated as no data exists to quantify them. However, she said sectors such as small business will play a “pivotal role” in moving things along, especially start-ups and micro-businesses.
“Although it is difficult to ascertain which specific activities will dominate production in the future, a consistent general picture is nonetheless emerging. Office and commercial building-occupying activities will continue to expand,” she said. “It remains to be seen whether this becomes the new normal or not. What is clear, though, is that we will not revert to the past. We now have a new north star.”