June 2014 Economic Activity Index ( GDB-EAI )
General Commentary June 2014 In June 2014, the GDB-EAI registered a 1.0% year-over-year (y-o-y) reduction, after showing a 1.1% y-o-y decrease in June 2014. June 2014 was the first month since July 2012 in which cement sales, electricity generation, gasoline consumption and private employment increased at the same time on a year over year basis. The June 2014 figure for the EAI was 126.1, a 1.0% reduction compared to June 2013. Moreover, the FY2014 EAI showed a reduction of 2.9% with respect FY2013. It was the month with the highest BLS private payroll employment number (681.2K) since June 2008. Total non-farm payroll employment for June 2014 averaged 918,800, an annual decrease of 1.2%, while FY2014 total non-farm payroll employment showed a 1.3% decrease with respect to FY2013. During this month, total private employment increased by 0.8% y-o-y (5,600 jobs), while total public employment decreased by 6.5% y-o-y (16,500 jobs) due to a policy decision to bring down the fiscal deficit. Electric power generation for June 2014 totaled 1,831.6 million kwh, an annual growth of 1.9%. Electricity generation for FY2014 was 2.7% below the average value of FY2013. The preliminary number for gasoline consumption* in June 2014 was 78.0 million gallons, 1.4% above June 2013. The FY2014 gasoline consumption number was 1.7% below the figure for FY2013. Cement sales for June 2014 totaled 1.26 million bags, registering an annual increase of 4.3%, the first one since August 2012. Sales for FY2014 were 13.0% below the value of FY2013. The year over year reduction in EAI for month of June 2014 was due solely to the decrease in public sector employment. * The monthly gasoline consumption is estimated by the GDB from the Treasury Department's monthly gasoline excise tax collections paid by importers which are transferred to P.R. Highways and Transportation Authority. These collections fluctuate due to changes in inventories and purchases, which do not necessarily reflect the actual monthly consumption reported by retailers. 2
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Index (January 1980 = 100) The GDB-EAI registered a 1.0% year-over-year reduction in June, after showing a 1.1% y-o-y decrease in May 2014. GDB Economic Activity Index 140 10% 135 8% 130 4% 2.7% 2.4% 1.8% 2.0% 2.1% 125 1.5% 1.5% 0.9% 1.0% 1.2% 1.2% 1.4% 2% 0.6% 0.1% 120-0.6% -1.0% -1.4% -1.2% -1.1% -1.0% 0% -2.3% -2.8% -2.6% -2.6% -2.3% -2.2% -1.9% -1.7% -1.6% -1.9% -2.0% -2.3% -2.3% -2.3% -2.8% -2.7% -2.5% -3.1% -2% 115-4.0% -3.8% -3.5% -3.3% -3.4% -4.1% -4.0%-3.8% -3.7% -3.4% -4.6% -4.4% -4.1% -4.3% -5.0% -4% 110-5.8% 6% -6% Percent 105-8% 100-10% Month Value (Left Hand Side) Year over year percent change (Right Hand Side) 3
Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Index (Jan. 1980 = 100) The complete series of the new EAI, which starts in January 1980, shows the recessions of FY1982 and FY1983, and the mild recession of FY1991, the recession of 2001. It also shows the path of the Index since the beginning of the current recession. 160 GDB Economic Activity Index 150 140 130 120 110 100 90 80 Month 4
Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 GDB Economic Activity Index Components Total Non-Farm Payroll Employment* (Thousands of jobs) 1,000 980 960 940 920 900 880 860 Total non-farm payroll employment for June 2014 averaged 918,800, an annual decrease of 1.2%. During this month, private employment increased by 0.8% y- o-y (5,600 jobs), while public employment decreased by 6.5% y-o-y (16,500 jobs) due to a policy decision to bring down the fiscal deficit. Electric Power Generation (Millions of kwh) 2,500 2,000 1,500 1,000 Electric power generation for June 2014 averaged 1,831.6 million kwh, an annual growth of 1.9%. 500 0 Sources: BLS and PREPA * Not seasonally adjusted. 5
Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 GDB Economic Activity Index Components Gasoline Consumption (Millions of gallons) 120 100 80 60 40 20 0 The preliminary estimate of gasoline consumption* for June 2014 was 78.0 million gallons, for an annual decrease of 1.4%. Cement Sales (Cement bags sold, in thousands) 2,000 1,800 1,600 1,400 1,200 1,000 Cement Sales for June 2014 totaled 1.26 million bags, an annual increase of 4.3%, the first annual increment observed since August 2012. This is consistent with an increase in construction employment of 5.4%, from 29,700 in June 2013 to 31,300 in June 2014. Sources: PRHTA and GDB * Not seasonally adjusted. *The monthly gasoline consumption is estimated by the GDB from the Treasury Department's monthly gasoline excise tax collections paid by importers which are transferred to P.R. Highways and Transportation Authority. 6
Description of the GDB-Economic Activity Index 7
GDB-EAI Highlights and Composition GDB Economic Activity Index Highlights Advantages of the GDB-EAI: Readily available Highly correlated to Puerto Rico s real GNP Reliable tool to monitor actual trend of Puerto Rico economy The GDB-EAI is made up of 4 indicators: Total Payroll Employment (Establishment Survey/ Thousand of employees) Total Electric Power Generation (Millions of kwh) Cement Sales (Millions of bags) Gas Consumption (Millions of gallons) 8
80 90 100 110 120 130 140 150 160 GNP54 (Million of dollars at 1954 prices) GNP54 Annual Growth Description of the GDB-EAI The GDB-EAI is a coincident index for the economic activity of Puerto Rico. It is highly correlated to Puerto Rico s real GNP not only on the levels, but also on the annual growth rates. This index was developed following the methodology similar to that used by The Conference Board in their coincident index. This methodology follows a standard procedure to adjust the data for seasonality and volatility factors. Real Gross National Product as a function of the GDB Economic Activity Index 8,000 7,000 6,000 5,000 4,000 3,000 Relationship on the levels: FY1981-FY2012 y = 49.495x 408.29 R² = 0.9773 Relationship on the growth rates: FY1982-FY2012 y = 0.7421x + 0.0062 R² = 0.8949 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -8% -6% -4% -2% 0% 2% 4% 6% 8% GDBEAI (January 1980=100) GDBEAI Annual Growth Sources: GDB 9
Appendix 10
Clarification about the interpretation of the GDB-EAI figures The GDB-EAI is an indicator of the general economic activity, not a direct measurement of the real GNP. Moreover, the GDB-EAI annual growth rates are not the same as the real GNP growth rates, because the former are more volatile than the latter. When it is annualized, the level of the EAI is highly correlated with the level of the real GNP (with a Pearson correlation coefficient of 0.9886, for FY1981-FY2012). The annual growth rates of both variables are also highly correlated (with a Pearson correlation coefficient of 0.9508, for FY1982-FY2012). Nevertheless, the annual growth rate of the EAI IS NOT the same as the annual growth rate of the real GNP. Being highly correlated does not mean being equal. In order to approximate real GNP growth from the EAI annual growth, we estimate a linear regression model relating both variables. Plugging in the EAI annual growth rates into the resulting equation we obtain estimates for the annual growth rates of the real GNP. This transformation generates an approximation of the actual real GNP growth figures. 11
Clarification about the interpretation of the GDB-EAI figures (2) Here is a comparison of the annual growth rates of the GDB-EAI with the actual real GNP figures. There are also estimates of the annual growth of the real GNP using the figures coming from the GDB-EAI. Fiscal Year EAI Annual growth Real GNP annual growth estimated using the EAI Actual Real GNP annual Growth 2000 2.9% 2.7% 3.0% 2001 1.1% 1.4% 1.5% 2002-1.2% -0.2% 0.3% 2003 1.8% 1.9% 2.1% 2004 2.0% 2.1% 2.7% 2005 1.6% 1.7% 1.9% 2006 0.3% 0.8% 0.5% 2007-1.3% -0.4% -1.2% 2008-2.5% -1.2% -2.9% 2009-4.9% -2.9% -3.8% 2010-4.9% -2.9% -3.6% 2011-2.9% -1.5% -1.6% 2012 0.1% 0.7% 0.1% Notice that the real GNP growth estimates coming from the EAI are relatively close to the actual real GNP growth figures. 12
Annual Growth Rates Clarification about the interpretation of the GDB-EAI figures (3) Here is a comparison graph of the actual real GNP figures and the estimates of the annual growth of the real GNP using the figures coming from the GDB-EAI. 4.0% Growth Rates Comparisons: Real GNP, and real GNP estimated with the GDB-EAI 2.0% 0.0% -2.0% -4.0% -6.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fiscal Year Real GNP annual growth rate Real GNP annual growth estimated using the EAI 13
Disclaimer The GDB-EAI and its indicators are subject to revisions. While the information comprising the GDB EAI has been obtained from sources GDB believes to be reliable, GDB is not responsible for any errors or omissions, or for the results obtained from the use of this information. 14