Puerto Rico and the U.S. Virgin Islands After Hurricanes ... Rico and the U.S. Virgin Islands After Hurricanes Irma and Maria ... Luis Munoz Marin Intl Airport in San Juan, ... and

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.

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

Economic & Fiscal

Situation Leading

Up to the Storms

Puerto Rico Economy Weak Well Before Maria Indexes of Economic Activity, Employment, and Population

3 Source: U.S. Bureau of Labor Statistics, U.S. Census Bureau, Planning Board of Puerto Rico, and Moody’s Economy.com.

70

75

80

85

90

95

100

105

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Index (2006 = 100)

Population

Real GNP

Employment

Since 2006:

• Population down 12%

• Employment down 16%

• Real GNP down 15%

USVI Also Weak Well Before Irma & Maria Indexes of Economic Activity, Employment, and Population

4 Source: U.S. Bureau of Labor Statistics, USVI Bureau of Economic Research, World Bank, and Moody’s Economy.com.

70

75

80

85

90

95

100

105

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Index (2006 = 100)

Population

Real GDP

Employment

Since 2006:

• Population down 4%

• Employment down 15%

• Real GDP down 27%

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 2012.

- 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

Initial Impacts of the Storms

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.

7

1) “Estimates of excess deaths in Puerto Rico following Hurricane Maria” Alexis Santos & Jeffrey T. Howard (Dec. 2017)

https://osf.io/preprints/socarxiv/s7dmu

2) Attributed to Carlos Flores Ortega, Secretary of Agriculture for Puerto Rico

FEDERAL RESERVE BANK OF NEW YORK

Population Loss After the Storms Net Domestic Passengers to Puerto Rico, 12-Month Rolling Sum

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

-250,000

-200,000

-150,000

-100,000

-50,000

0

50,000

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

12 months ending in Aug

U.S. Census Net PR Migration 2011-2016 Annual

Puerto Rico Net Airline

Passengers

12 months Ending in Nov

Between Aug. and Nov. 2017,

the net number of domestic

air passengers departing was

roughly 160,000 above trend.

Assessing Damage and Recovery:

Nighttime Lights

• Research1 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.

FEDERAL RESERVE BANK OF NEW YORK 9

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) http://www.nber.org/papers/w22216

Nighttime Lights in Puerto Rico

Source: Earth Observation Group; NOAA National Geophysical Data Center.

October August

January December

Ponce

Mayaguez

San Juan

Caguas

Aguadilla

Humacao

Vieques

Culebra

Arecibo

Ponce

Mayaguez

San Juan

Caguas

Aguadilla

Humacao

Vieques

Culebra

Arecibo

Ponce

Mayaguez

San Juan

Caguas

Aguadilla

Humacao

Vieques

Culebra

Arecibo

Ponce

Mayaguez

San Juan

Caguas

Aguadilla

Humacao

Vieques

Culebra

Arecibo

10

January Nighttime Lights Brightness as a Percentage of August Baseline

Source: Authors’ Calculations; Earth Observation Group; NOAA National Geophysical Data Center.

Ponce

Mayaguez

San Juan

Caguas Aguadilla Humacao

Vieques

Culebra

Arecibo

U.S. VIRGIN ISLANDS

St. Croix

St. Thomas

St. John

BRITISH VIRGIN

ISLANDS

Less than 50%

50% - 60%

60% - 70%

70% - 80%

80% - 90%

More than 90%

PUERTO RICO

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.

11

Economic Outlook

After the Storms

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

How Does This Compare to Other Disasters? Local Job Loss Following Natural Disasters, from Onset to Trough

+0.0%

-0.1%

-0.3%

-0.5%

-0.9%

-1.3%

-1.3%

-2.3%

-4.2%

-6.2%

-7.8%

-9.4%

-29.7%

Andrew-Metro Miami (Aug1992)

Blizzard-Philadelphia Metro (Jan1996)

Hugo-Puerto Rico (Sep1989)

Georges-Puerto Rico (Sep1998)

Harvey-Metro Houston (Aug2017)

Sandy - NY/NJ Coastal Counties (Oct2012)

Irma-Florida (Sep2017)

Ivan-Pensacola (Sep2004)

Maria-Puerto Rico (Sep2017)

Marilyn-US Virgin Islands (Sep1995)

Maria & Irma-US Virgin Islands (Sep2017)

Hugo-US Virgin Islands (Sep1989)

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.

Source: U.S. Bureau of Labor Statistics, Haver Analytics, and Moody’s Economy.com. 14

Employment Paths Post Hurricanes Index (Month Before Hurricane = 100)

Source: U.S. Bureau of Labor Statistics, Moody’s Economy.com, and FRBNY staff calculations.

70

80

90

100

110

-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

Index (Month Before Hurricane = 100)

Months Before Hurricane Months After Hurricane

New Orleans (Katrina – Aug 2005)

U.S. Virgin Islands (Hugo – Sep 1989)

U.S. Virgin Islands (Marilyn – Sep 1995)

Puerto Rico (Maria – Sep 2017)

U.S. Virgin Islands (Irma/Maria – Sep 2017)

15

Jobless Claims Confirm Payroll Data Weekly Initial Jobless Claims in Puerto Rico Before and After Maria

0

2,000

4,000

6,000

8,000

10,000

Jul29 Aug12 Aug26 Sep09 Sep23 Oct07 Oct21 Nov04 Nov18 Dec02 Dec16 Dec30 Jan13

Actual Claims

Jobless Claims

Counterfactual

Estimated number of additional

jobless claims due to hurricane:

37,000 or 4.2% of employment

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. 16

Jobs Lost by Sector in Puerto Rico Aug-Oct Job Change vs. Aug-Dec Job Change

Source: U.S. Bureau of Labor Statistics and Moody’s Economy.com.

-16,000

-12,000

-8,000

-4,000

0

4,000

Leisure & Hospitality

Trade

Construction

Education & Health

Professional & Business

Manufacturing

August-October Change

August-December Change

17

Jobs Lost by Sector in USVI Aug-Oct Job Change vs. Aug-Dec Job Change

Source: U.S. Bureau of Labor Statistics and Moody’s Economy.com.

-2,000

-1,500

-1,000

-500

0

500

Leisure & Hospitality

Trade

Construction

Education & Health

Professional & Business

Manufacturing

August-October Change

August-December Change

18

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

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

Appendix

U.S. Virgin Islands Jobless Claims Weekly Initial Jobless Claims in USVI Before and After Irma & Maria

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.

0

200

400

600

800

1,000

1,200

Jul29 Aug12 Aug26 Sep09 Sep23 Oct07 Oct21 Nov04 Nov18 Dec02 Dec16 Dec30 Jan13

Actual Claims

Counterfactual Jan6

Jobless Claims

Estimated number of additional

jobless claims due to hurricane:

4,300 or 11% of employment

22

Population Loss After the Storms Net Domestic Passengers to U.S. Virgin Islands, 12-Month Rolling Sum

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.

-16,000

-12,000

-8,000

-4,000

0

4,000

8,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

12 months ending in Aug

12 months Ending in Nov

23