Puerto Rico consumer fragility index stays moderate
Puerto Rico’s Consumer Financial Fragility Index (CFFI) remained in the moderate fragility range during the first half of 2025, local economic analysis firm Estudios Técnicos reported Tuesday.
In the first quarter, the index stood at 0.33, rising slightly to 0.38 in the second quarter. Despite this uptick, the index reflects a significant improvement compared to the 2024 average of 0.52, which indicated a high level of fragility, according to the report.
The CFFI, compiled quarterly by Estudios Técnicos, measures consumers’ financial vulnerability based on four variables: delinquency rate on consumer and residential mortgage loans, unemployment rate, personal bankruptcies and annual income of private sector employees.
The index ranges from zero to one and is categorized as follows: 0 to 0.25 shows low fragility; 0.26 to 0.50 indicates moderate fragility; 0.51 to 0.75 high fragility; and 0.76 to 1.00 extreme fragility.
Leslie Adames, director of analysis and economic policy for Estudios Técnicos, attributed the index’s improvement during the first quarter to a historically low unemployment rate of 5.4%, a decrease in consumer and mortgage loan delinquencies, higher real wages supported by a slowdown in inflation and fewer personal bankruptcies, which dropped from 1,022 cases in the fourth quarter of 2024 to 904 in in the first quarter of 2025.
However, consumer financial fragility worsened in the second quarter because of an increase in the consumer loan delinquency rate, from 2.70% to 3.04%, and in personal bankruptcies, which rose from 904 cases to 1,019 cases.
“These were partially offset by continued improvement in real wages and stable unemployment levels,” Adames said in the report.
Looking ahead, the index’s trajectory will largely depend on the path of inflation, especially due to the Trump administration’s tariff policy, which may begin impacting prices in the second half of 2025, Adames said. Local consumer fragility will hinge on the ability of companies to absorb costs before passing them on to consumers, consumers’ price sensitivity and the availability of substitute products.
A potential Federal Reserve interest rate cut in September — with an 88% probability of a 25-basis-point reduction, which would bring the target range for the federal funds rate to 4.00% to 4.25% — may help reduce consumer loan financing costs. As of Aug. 26, 2025, the target range was 4.25% to 4.50%, a level held since December 2024.
Yet, high household debt levels, lower liquidity in the economy and a labor market in which job growth is skewed toward part-time positions will continue to pose a risk to the financial fragility of consumers in Puerto Rico, according to the report.
The steepening U.S. Treasury yield curve also presents challenges. As of Aug. 26, the spread between two- and 30-year bonds stood at +124.6 basis points, with yields of 4.94% on the 30-year bond and 3.694% on the two-year bond. This spread limits relief for mortgage rates, raises the cost of capital for businesses, tightens credit conditions, pressures disposable income and could intensify consumer financial fragility.
“The index is clearly signaling rising risks on multiple fronts. FDIC and Puerto Rico Office of the Commissioner of Financial Institutions data through the second quarter of 2025 show higher consumer indebtedness and lower savings, which combined with persistent inflation leave households with little capacity to absorb shocks while still servicing existing debts, even if short-term rates decline,” Adames told News is my Business.
“This creates a sensitive financial situation, given the implications for credit access in an economy where more than 90% of the GDP (gross domestic product) depends on consumer spending in both durable and nondurable goods. In today’s environment of heightened uncertainty, consumers are encouraged to prioritize financial prudence, disciplined expense control and effective budgeting to mitigate further stress on their finances,” he said.
“A ‘wait-and-see’ approach may serve the Fed, but not consumers,” he added.
