Puerto Rico and the U.S. Virgin Islands After Hurricanes Irma and Maria Jason Bram, Officer Research Economist

Transcription

1 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.

2 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

3 Economic & Fiscal Situation Leading Up to the Storms

4 Puerto Rico Economy Weak Well Before Maria Indexes of Economic Activity, Employment, and Population 105 Index (2006 = 100) Employment Population 85 Real GNP Since 2006: Population down 12% Employment down 16% Real GNP down 15% Source: U.S. Bureau of Labor Statistics, U.S. Census Bureau, Planning Board of Puerto Rico, and Moody s Economy.com. 3

5 USVI Also Weak Well Before Irma & Maria Indexes of Economic Activity, Employment, and Population 105 Index (2006 = 100) 100 Population Employment Since 2006: Population down 4% Employment down 15% Real GDP down 27% Real GDP Source: U.S. Bureau of Labor Statistics, USVI Bureau of Economic Research, World Bank, and Moody s Economy.com. 4

6 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 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

7 Initial Impacts of the Storms

8 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. 1) Estimates of excess deaths in Puerto Rico following Hurricane Maria Alexis Santos & Jeffrey T. Howard (Dec. 2017) 2) Attributed to Carlos Flores Ortega, Secretary of Agriculture for Puerto Rico FEDERAL RESERVE BANK OF NEW YORK 7

9 Population Loss After the Storms Net Domestic Passengers to Puerto Rico, 12-Month Rolling Sum 50,000 0 U.S. Census Net PR Migration Annual -50, ,000 Puerto Rico Net Airline Passengers 12 months ending in Aug -150, ,000 Between Aug. and Nov. 2017, the net number of domestic air passengers departing was roughly 160,000 above trend. 12 months Ending in Nov -250, 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

10 Assessing Damage and Recovery: Nighttime Lights Research 1 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. 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) FEDERAL RESERVE BANK OF NEW YORK 9

11 Nighttime Lights in Puerto Rico August October San Juan Culebra Vieques San Juan Culebra Vieques Aguadilla Arecibo Caguas Humacao Aguadilla Arecibo Caguas Humacao Mayaguez Mayaguez Ponce Ponce December January San Juan Culebra Vieques San Juan Culebra Vieques Aguadilla Arecibo Caguas Humacao Aguadilla Arecibo Caguas Humacao Mayaguez Mayaguez Ponce Ponce Source: Earth Observation Group; NOAA National Geophysical Data Center. 10

12 January Nighttime Lights Brightness as a Percentage of August Baseline 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. BRITISH VIRGIN ISLANDS St. John Aguadilla PUERTO RICO Arecibo San Juan Caguas Humacao Culebra Vieques St. Thomas U.S. VIRGIN ISLANDS St. Croix Mayaguez Ponce Less than 50% 50% - 60% 60% - 70% 70% - 80% 80% - 90% More than 90% Source: Authors Calculations; Earth Observation Group; NOAA National Geophysical Data Center. 11

13 Economic Outlook After the Storms

14 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

15 How Does This Compare to Other Disasters? Local Job Loss Following Natural Disasters, from Onset to Trough -29.7% 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. -9.4% -7.8% -6.2% -4.2% -2.3% -1.3% -1.3% -0.9% -0.5% -0.3% -0.1% +0.0% Hugo-US Virgin Islands (Sep1989) Maria & Irma-US Virgin Islands (Sep2017) Marilyn-US Virgin Islands (Sep1995) Maria-Puerto Rico (Sep2017) Ivan-Pensacola (Sep2004) Irma-Florida (Sep2017) Sandy - NY/NJ Coastal Counties (Oct2012) Harvey-Metro Houston (Aug2017) Georges-Puerto Rico (Sep1998) Hugo-Puerto Rico (Sep1989) Blizzard-Philadelphia Metro (Jan1996) Andrew-Metro Miami (Aug1992) Source: U.S. Bureau of Labor Statistics, Haver Analytics, and Moody s Economy.com. 14

16 Employment Paths Post Hurricanes Index (Month Before Hurricane = 100) Index (Month Before Hurricane = 100) U.S. Virgin Islands (Marilyn Sep 1995) Puerto Rico (Maria Sep 2017) 90 U.S. Virgin Islands (Hugo Sep 1989) U.S. Virgin Islands (Irma/Maria Sep 2017) New Orleans (Katrina Aug 2005) 80 Months Before Hurricane Months After Hurricane Source: U.S. Bureau of Labor Statistics, Moody s Economy.com, and FRBNY staff calculations. 15

17 Jobless Claims Confirm Payroll Data Weekly Initial Jobless Claims in Puerto Rico Before and After Maria 10,000 Jobless Claims 8,000 Estimated number of additional jobless claims due to hurricane: 37,000 or 4.2% of employment 6,000 4,000 Actual Claims 2,000 Jan6 Counterfactual 0 Jul29 Aug12 Aug26 Sep09 Sep23 Oct07 Oct21 Nov04 Nov18 Dec02 Dec16 Dec30 Jan13 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

18 Jobs Lost by Sector in Puerto Rico Aug-Oct Job Change vs. Aug-Dec Job Change 4,000 August-October Change August-December Change 0 Construction -4,000 Professional & Business Manufacturing -8,000-12,000 Trade Education & Health -16,000 Leisure & Hospitality Source: U.S. Bureau of Labor Statistics and Moody s Economy.com. 17

19 Jobs Lost by Sector in USVI Aug-Oct Job Change vs. Aug-Dec Job Change 500 August-October Change August-December Change 0 Professional & Business Manufacturing Construction -500 Education & Health -1,000 Trade -1,500 Leisure & Hospitality -2,000 Source: U.S. Bureau of Labor Statistics and Moody s Economy.com. 18

20 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

21 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

22 Appendix

23 U.S. Virgin Islands Jobless Claims Weekly Initial Jobless Claims in USVI Before and After Irma & Maria 1,200 Jobless Claims 1,000 Estimated number of additional jobless claims due to hurricane: 4,300 or 11% of employment Actual Claims 200 Counterfactual 0 Jul29 Aug12 Aug26 Sep09 Sep23 Oct07 Oct21 Nov04 Nov18 Dec02 Dec16 Dec30 Jan13 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. 22

24 Population Loss After the Storms Net Domestic Passengers to U.S. Virgin Islands, 12-Month Rolling Sum 8,000 4, , months ending in Aug -8,000-12, months Ending in Nov -16, 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. 23