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.
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 Donald Morgan, 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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