The New York Fed has released a report regarding the economic situation in Puerto Rico. In general, the outlook is encouraging. Although the Island has experienced a 10% population decline over the past decade after suffering even steeper losses in preceding decades, job growth has surged by 9.2%, while unemployment has dropped to 5.6%. The labor force participation rate remains considerably lower than it was at its peak in 2006, yet it has returned to pre-Hurricane Maria levels from 2017 and the pandemic period of 2020-2022.
Employment
Manufacturing stands as the principal engine of Puerto Rico’s economy, with employment in this sector recovering to 2012 levels. However, it still falls short of levels seen in 2000 and earlier, a trend that mirrors a nationwide decline in manufacturing across all 50 states and U.S. territories.
Manufacturing contributes 43% to Puerto Rico’s GDP. While a portion of this includes transfer payments from multinational companies rather than actual economic gains for the Island, Puerto Rico remains a notable hub for pharmaceuticals and medical devices.
Retail constitutes approximately 20% of Puerto Rico’s economy. Employment in this sector is on the mend, although local business owners find it challenging to compete against national retailers and online platforms.
The financial services and real estate sectors account for another 20% of Puerto Rico’s economic activity. This sector is one of the most vibrant in the territory, currently employing a historically high number of individuals.
Tourism has risen to represent about 10% of the economy, up from just 2% a decade ago. This sector has enjoyed significant growth over the years, though it did experience a sharp decline during the Hurricane Maria and pandemic periods. The tourism industry in the Island is making considerable progress, with employment in this field continuing to climb. However, the impressive growth is notable primarily because it started from historically low levels compared to other tourist destinations.
Agriculture, once a primary employment sector in Puerto Rico, now accounts for merely about 1% of the economy. Government employment, previously a major job source, has been intentionally reduced, while sectors such as education and healthcare are experiencing growth. Overall, job opportunities present a positive aspect for the Island.
Challenges in the economy
The Fed states, “The island has made significant strides in addressing and recovering from its substantial fiscal crisis.” Clearly, this is encouraging news. However, around 41% of Puerto Ricans live at or below the poverty line, which is more than double the poverty rate of Mississippi, the lowest-ranked U.S. state. A large portion of the GDP appears deceptive, reflecting income for Puerto Rico that primarily benefits the national or international corporations and affluent individuals utilizing Puerto Rico as a tax haven.
The typical household income in Puerto Rico is just over $23,000 annually, while the average home price stands at $122,000. This disparity indicates that most residents in Puerto Rico are unable to afford homeownership, despite headlines showcasing real estate transactions reaching prices such as $45,000,000. Gentrification exacerbates housing difficulties. Furthermore, 85% of the food consumed in Puerto Rico is imported, and the territory imposes the highest sales tax on food among all U.S. jurisdictions, typically two to three times greater than that of the states. Energy expenses are also significantly higher in Puerto Rico than in the states, with only Hawaii reporting higher electricity prices. Consequently, while the cost of living remains relatively high, incomes tend to be quite low.
Puerto Rico also grapples with an exceptionally high rate of income inequality, surpassing any other region in the United States. “While many contend that the U.S. suffers from an unsustainable wealth distribution with only 10% of households earning more than $200,000 annually, in Puerto Rico merely 1.4% of households surpass that threshold,” notes CENTRO. “In the meantime, poverty is widespread: 25% of individuals live with annual incomes of $10,000 or less (compared to 6% in the overall U.S.).”
Island residents heavily depend on federal assistance, with 40% relying on food stamps and half needing Medicaid for healthcare. Yet both federal programs provide less support in Puerto Rico than in the states, despite the increased demand.
While macroeconomic indicators suggest improvement, significant work remains to foster economic vitality throughout the U.S. territory.
The post Puerto Rico’s Economy appeared first on PUERTO RICO REPORT.
