PR economy included in US trade statistics for first time. These were the prototype results
By The Star Staff
The Bureau of Economic Analysis of the U.S. Department of Commerce has released prototype annual estimates of gross domestic product (GDP) for Puerto Rico for 2012 to 2018.
The statistics marked the first time the federal government has issued statistics for the local government in the area of economy and trade.
The prototype estimates show that the Puerto Rico economy, as measured by inflation-adjusted (or “real”) GDP, expanded from 2012 to 2014, before turning down in 2015 and continuing to decrease through 2018. Exports of goods and services was a key contributor to changes in real GDP over this period.
Within exports and imports of goods and services, much of the volatility reflected trade in intellectual property-intensive goods, including pharmaceuticals and organic chemicals, and medical and scientific equipment and appliances. In Puerto Rico, subsidiaries of large nonresident multinational enterprises operate within the industries engaged in the manufacturing of the goods.
GDP measures the value of goods and services produced within the geographical borders of a region in a given period, regardless of who owns the factors of production. Puerto Rico GDP therefore includes production owned by nonresidents, such as nonresident multinational enterprises, that occurs in Puerto Rico.
Real GDP expanded from 2012 to 2014 before turning down in 2015 and continuing to decrease through 2018. The growth from 2012 to 2014 was more than accounted for by exports. Exports of goods grew significantly in these years, especially pharmaceuticals and organic chemicals, and medical and scientific equipment and appliances. The largest decline in real GDP over the period was in 2017, reflecting the widespread impact of hurricanes Irma and Maria on exports of goods, private inventory investment, and personal consumption expenditures (also referred to as consumer spending).
In 2018, real GDP declined 0.9 percent. Although consumer spending, private inventory investment, and construction activity grew significantly in the year after the hurricanes, these increases were offset by an increase in imports, which is a subtraction in the calculation of GDP, and a decrease in exports.
Regarding personal consumer expenditures, real consumer spending for Puerto Rico decreased in each year from 2012 to 2017. The average annual growth rate for this period was -1.9 percent, consistent with a steady decline in the resident population over this time period.
The largest decreases in real consumer spending occurred in 2014 and 2017. In 2014, as wages dropped and consumer prices continued to increase, residents reduced their spending on both goods and services. The declines within goods were widespread; the largest decreases were for motor vehicles and “other” nondurable goods, which includes items such as medicine and clothing. In 2017, hurricanes Irma and Maria caused catastrophic damage that restricted residents’ access to many goods and services. The decreases in health care, housing and utilities, and “other” services (including education services) were especially large.
Despite a continued decrease in population, real consumer spending increased 3.4 percent in 2018, supported by disaster-related insurance payouts and government payments to households. The largest contributor to the growth in 2018 was durable goods, including purchases of motor vehicles.
Private fixed investment (PFI) measures spending by private businesses, nonprofit institutions, and households on fixed assets in the Puerto Rico economy. Spending is grouped into three categories: structures, equipment, and intellectual property products.
From 2012 to 2018, real PFI for Puerto Rico increased in all years.
Real spending on structures by the private sector increased significantly in 2018, reflecting the rebuilding of properties after hurricanes Irma and Maria. The 2018 increase more than offset the combined decreases in spending from 2012 to 2017. The largest declines for these years occurred in residential construction, reflecting the continued drop in demand for homes, coupled with an even further decline in 2017.
Real spending on equipment grew in each year over this period, except in 2015. The highest growth occurred in 2018, with an increase larger than the combined increases in equipment investment from 2012 to 2017. The growth in 2018 largely reflected business purchases to replace damaged or destroyed equipment, including industrial machinery, following the 2017 hurricanes.
Real spending on intellectual property products (IPP) increased in each year over this period. The majority of these expenditures were for software and for research and development funded by computer services providers.
Change in private inventories, also referred to as inventory investment, is a measure of the value of the change in the physical volume of inventories that businesses maintain to support their production and distribution activities. In general, inventory investment is one of the most volatile components of GDP, giving it an important role in shorter-run variations in GDP growth.
The largest decrease in real inventory investment occurred in 2017 when inventories were negatively affected by hurricanes Irma and Maria. The main contributor to the drawdown in inventories was the chemical manufacturing industry, which includes pharmaceutical manufacturers. The largest increase occurred in 2018 as the economy began to recover from the 2017 hurricanes.
Net exports of goods and services is the difference between Puerto Rico exports of goods and services and Puerto Rico imports of goods and services. Exports measures the portion of Puerto Rico’s total production of goods and services that is provided to the rest of the world, including the rest of the United States. Imports measures the portion of total Puerto Rico expenditures that is accounted for by goods and services provided by the rest of the world. Together, the two measures reflect the extent to which Puerto Rico participates in the global marketplace.
For Puerto Rico, net exports of goods and services is a critical component of GDP, due to its size relative to total GDP and its volatility. Over the period 2012 to 2018, the ratio of net exports to GDP was 24 percent.
Over the period 2012 to 2018, net exports was positive in all years. The majority of Puerto Rico’s trade surplus was in goods. The surplus on pharmaceuticals and organic chemicals ranged from $21.8 billion to $34.1 billion each year.
Real exports of goods grew from 2012 to 2015; the highest growth was in 2014 to 75 percent. The increase in 2014 reflected growth of over 40 percent in medical and scientific equipment and appliances. Real exports of goods turned down in 2016 and then decreased 13.5 percent in 2017, reflecting the effects of hurricanes Irma and Maria on the manufacturing sector. Real exports of goods continued to decline in 2018. The largest contributor to the decline was a 74.3 percent decrease in exports of foods, feeds and beverages.
Real exports of services increased in each year over this period, at an average annual growth rate of 3 percent.
Puerto Rico depends heavily on imported goods and services for production by busin esses and consumption by households. From 2012 to 2018, the ratio of imported goods and services to GDP for Puerto Rico was 46 percent.
The pattern of change in real imports was driven by goods. The largest decrease was in 2017 and was more than accounted for by a decline in imports of pharmaceuticals and organic chemicals. The decrease reflected the effects of the hurricanes, which disrupted manufacturing activity on the island.
Government consumption expenditures and gross investment — or government spending — in Puerto Rico measures final expenditures accounted for by the central government (including the Commonwealth Government of Puerto Rico and its component units), the municipal governments, and the U.S. federal government. Government consumption expenditures consist of spending by government agencies, except government enterprises, to provide goods and services to the public. Gross investment consists of spending by all government agencies, including government enterprises, for structures, equipment, and intellectual property products used in producing those goods and services.
Real government spending decreased from 2012 to 2016 to almost negative 5 percent, reflecting declines in government employment and construction spending by the central government. Over this period, the central government accounted for approximately two-thirds of total government spending,
In 2017 and 2018, real government spending increased, reflecting spending on hurricane response and recovery activities. Many of these activities were funded by grants and direct federal assistance through the Federal Emergency Management Agency.
After decreasing each year from 2013 to 2016, real government gross investment increased 23.2 percent in 2017 and 87.2 percent in 2018. These increases reflected post-disaster rebuilding, particularly by the central government. Structures investment by the central government increased 39.8 percent in 2017 and 117.7 percent in 2018, largely due to spending to restore the power grid.