The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region. The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes sound financial and economic decisions through community development and education programs.
Puerto Rico’s economic and fiscal challenges have been an important focus of work done here at the New York Fed, resulting in two reports (2012 and 2014), several blog posts and one paper in our Current Issues series in just the last few years. As the Commonwealth’s problems have deepened, the Obama administration and Congress have begun discussing potential approaches to addressing them. In this post, we update our previous estimates of Puerto Rico’s outstanding debt and discuss the effect that various forms of bankruptcy protection might have on the Commonwealth.
Jaison R. Abel, Jason Bram, Richard Deitz, and James Orr
Today’s Economic Press Briefing at the New York Fed presented our economic outlook for New York, Northern New Jersey, and Puerto Rico. We showed that many parts of the region have bounced back quite well from the Great Recession and are growing at a solid clip, including New York City, Buffalo, and Albany. The picture is a bit different in other parts of the region, though. In both Northern New Jersey and the Lower Hudson Valley, employment has been growing steadily, but jobs are still not back to their pre-recession peak. And there are also pockets of significant weakness, such as Binghamton, Puerto Rico, and the U.S. Virgin Islands, which have yet to show any meaningful signs of recovery.
For the first time in modern history, Puerto Rico is seeing its population decline. This troubling loss can be traced to an exodus of Puerto Rican citizens to the U.S. mainland, a current that has picked up considerably in recent years as Puerto Rico’s economy has deteriorated. Today, fully a third of those born in Puerto Rico now reside on the U.S. mainland. In this post, we examine the recent surge in out-migration that is driving Puerto Rico’s population decline (which we delve into in more detail in a recent article in the New York Fed’s Current Issues in Economics and Finance series), and then discuss measures the Island could adopt to address this troubling trend.
Every March, the Bureau of Labor Statistics releases benchmark revisions of state and local payroll employment for the preceding two years. While employment data are released monthly for all 50 states and many metropolitan areas, the monthly figures are estimated based on a sample of firms. The annual revisions are based on an almost complete count of workers (now available up through mid-2014) from the records of the unemployment insurance system and re-estimated data for the remainder of the year. In this post, we briefly summarize the mixed but mostly stronger performance in the region in 2014 indicated by these employment revisions. We highlight the most pronounced changes across our District—highlighted by New York City’s even stronger-looking boom—using the percentage change in total employment from the fourth quarter of 2013 to the fourth quarter of 2014 as the metric.
An Update on the Competitiveness of Puerto Rico’s Economy, released today, offers six steps that the Island’s government should consider taking to restore its fiscal health. Puerto Rico faces interrelated economic and fiscal challenges. The report characterizes economic activity in Puerto Rico as flat at a depressed level and shows that public debt has risen to about 100 percent of GNP, a high ratio compared with the ratios for U.S. mainland states and a number of foreign economies. Besides the weak economy, the main sources of the debt buildup have been increasing general government deficits; debt incurred by COFINA, a special-purpose bond issuing entity; and rising deficits in a group of public-sector corporations that provide a variety of services on the Island, including electricity, water, and transportation. A series of ratings downgrades eventually pushed the credit ratings on the Island’s debt below investment grade in early 2014, and it has become increasingly evident that fiscal and economic reforms will be needed in order to maintain access to capital markets on a sustainable basis.
At today’s regional economic press briefing, we provided an update on economic conditions in New York, northern New Jersey, and Puerto Rico, with a special focus on the kinds of jobs that have been created in each of these places during the recovery. Led by New York City, economic activity has continued to expand in most parts of the region. As a result, a growing number of places have now gained back, or are close to gaining back, all of the jobs that were lost during the Great Recession. That said, not all the news was positive. Economic conditions appear to have weakened somewhat in northern New Jersey during the first few months of 2014, in part due to the harsh winter weather earlier this year. And a few places remain very weak. In particular, Binghamton, Elmira, Utica, and Puerto Rico have yet to see any meaningful jobs recovery.
Puerto Rico’s economy has been in a protracted economic slump since 2006. If there were officially designated recessions for the Commonwealth, it probably would have been in one for the better part of these past seven years. Real GNP had fallen 12 percent before finally leveling off in 2012. But the economic measure most widely relied upon to gauge the island’s economy—because the data are monthly and timely—is payroll employment. Between early 2006 and the first half of 2011, this measure fell by a similar amount (13 percent); it then started to recover gradually in late 2011 and into the first part of 2012. But late in the year it began to nosedive again, reaching new lows in mid-2013—Or did it? More complete tabulations of employment presage upward revisions to Puerto Rico’s payroll job count, suggesting that current employment (and thus economic) conditions are not as gloomy as they appear, based on currently reported data.
The U.S. Virgin Islands are a small and unique component of the Second Federal Reserve District. Situated just east of Puerto Rico, the islands of St. Thomas, St. Croix, and St. John are home to roughly 106,000 residents—less than one-thirtieth of Puerto Rico’s population—and make up a territory of the United States. Yet the U.S. Virgin Islands are often ranked as the Caribbean’s top vacation destination on U.S. soil. In this post, we briefly describe the structure of the local economy and look at trends and developments over the years—especially the past few years, during which the islands lost a major employer and endured a prolonged and wrenching economic downturn . . . that now appears to be bottoming out.
Fiscal stimulus, in the form of large discretionary
increases in federal spending and tax reductions, is often triggered by a strong
and persistent rise in the national unemployment rate. The most recent example was
the $860 billion (6 percent of GDP) stimulus contained in the 2009 American
Recovery and Reinvestment Act (ARRA), adopted in the context of rising
unemployment rates. The spending components of the program were varied, including
federal transfers to state governments to support education and social
services, assistance to unemployed and disadvantaged individuals, and funds for
capital construction projects. The majority of the stimulus funds were
allocated to state governments and, since the program was motivated by high and
rising aggregate unemployment, a reasonable expectation would have been that
states with high unemployment rates would receive large allocations. Our analysis of the distribution of ARRA funds across states shows that the expanded
assistance to unemployed workers was indeed highly correlated with state
unemployment rates. It turned out, however, that most other state allocations
had little association—positive or negative—with state unemployment rates. The ultimate
distribution instead seemed to reflect a number of practical considerations
involved in implementing such a vast spending program. In this post, we outline
what in our view were the key considerations that governed the distribution of
the stimulus spending across states, and we use the example of one component of
that spending—highway infrastructure investment—to illustrate how the stimulus
funds got to the states.
Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.
The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.
The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
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