January 2014 Economic Activity Index ( GDB-EAI )
Special Comment March 2014 Benchmark Revision of Payroll Employment In March 2014 there was a major benchmark revision of the payroll employment data for 2013, similar to the one which occurred for the previous year. Every March the BLS publishes the benchmark revision of the payroll employment. Each revision changes the employment figures for the previous 21 months. The revision released in March 2013 increased the 2012 average level of payroll employment by 18,433 employees with respect to the previous employment estimates published until December 2012. Moreover, the revision released in March 2014 increased the 2013 level of payroll employment by 21,275 jobs with respect to the estimates released until December 2013. 2
Special Comment March 2014 Benchmark Revision of Payroll Employment (2) The benchmark revision had impacts on year-over-year (y-o-y) growth rates for 2013. The payroll employment benchmark revision not only impacted the average level of payroll employment, it also changed its average growth rate for previous years. Notice that from a 0.7% decline during FY2013, the revised figures now reflect a 0.7% increase; and from a year-to-date (July-December) contraction of 4.3% in FY2014, the revised numbers show a year-to-date drop of 2.4%. In addition to the revision of the 21 months prior to January 2014, the revision included changes for December 2006 (+2,500 jobs), December 2007 (+2,200 jobs), December 2009 (+13,200 jobs), and December 2010 (+6,600 jobs). 3
Thousands Y-O-Y % Ch. Thousands Y-O-Y % Ch. Thousands % Change Thousands % Change Special Comment March 2014 Benchmark Revision of Payroll Employment (3) Below are the impacts of the benchmark revision on payroll employment. Before the benchmark revision Total Non-Farm Payroll Employment 1,100 6 Total Payroll Employment % Change 4 1,000 2 After the benchmark revision Total Non-Farm Payroll Employment 1,100 6 Total Payroll Employment % Change 4 1,000 2 900 0 900 0 800-2 -4 800-2 -4 700 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13-6 700 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13-6 1,000 960 920 880 840 800 Fiscal Years Total Non-Farm Payroll Employment Total Payroll Employment Y-O-Y % Ch. 2 1 0-1 -2-3 -4-5 -6 1,000 960 920 880 840 800 Fiscal Years Total Non-Farm Payroll Employment 2 Total Payroll Employment Y-O-Y % Ch. 1 0-1 -2-3 -4-5 -6 Months Months 4
Special Comment March 2014 Benchmark Revision of Payroll Employment (4) The annual benchmark revision resulted in the adjustment of the GDB-EAI Given that the total payroll employment is one of the components of the GDB-EAI, a major change in payroll employment implies a significant change in the Index. Prior to the annual benchmark revision, the EAI was declining by 0.9% in FY2013 and by 5.4% in FY2014. After the benchmark revision, the reduction in the EAI was of 0.1% in FY2013 and of 4.0% for the first semester of FY2014. 5
Index 80=100 Y-O-Y % Ch. Index 80=100 Y-O-Y % Ch. Index 80=100 % Change Index 80=100 % Change Special Comment March 2014 Benchmark Revision of Payroll Employment (5) Below are the changes of the benchmark revision on the GDB-EAI. Before the benchmark revision 160 155 150 145 140 135 130 125 120 115 GDB Economic Activity Index Index % Change 10 8 6 4 2 0-2 -4-6 -8-10 160 155 150 145 140 135 130 125 120 115 After the benchmark revision GDB Economic Activity Index Index % Change 10 8 6 4 2 0-2 -4-6 -8-10 Fiscal Years Fiscal Years 134 132 GDB Economic Activity Index Index Y-O-Y % Ch. 6 4 134 132 Index GDB Economic Activity Index 6 Y-O-Y % Ch. 4 130 128 126 124 2 0-2 130 128 126 124 2 0-2 122-4 122-4 120-6 120-6 Months Months 6
Index (January 1980 = 100) Special Comment March 2014 Benchmark Revision of Payroll Employment (6) The benchmark revision still implies y-o-y reductions, but at smaller magnitudes. GDB Economic Activity Index (Before and After the March 2014 Payroll Benchmark Revision) 140 135 130 125 120 115 110 105 100 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% -7% Month GDB-EAI before GDB-EAI after %CEAI before %CEAI after 7
Forthcoming changes The Economic Analysis Division is testing different seasonal adjustment procedures which will be implemented in the April 2014 release. In order to further reduce the volatility of the Index, the Economic Analysis Division is testing different seasonal adjustment procedures. The change in the current seasonal adjustment procedure would allow more reasonable month-over-month comparisons for the monthly observations of the index. The selected seasonal adjustment procedure will be implemented in the April 2014 release. 8
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. 9
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. Notice that the real GNP growth estimates coming from the EAI are relatively close to the actual real GNP growth figures. 10
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. 11
General Commentary January 2014 In January 2014, the GDB-EAI registered a 3.5% year-over-year reduction. The January 2014 EAI was 127.0, a 3.5% reduction compared to January 2013. Moreover, the FY2014 YTD (July- January) EAI showed a reduction of 4.0% with respect to the corresponding figure for FY2013. The preliminary number for gasoline consumption* in January 2014 was 92.8 million gallons, 15.1% above January 2013. The FY2014 YTD gasoline consumption number was 2.6% below the corresponding figure for FY2013. Total non-farm payroll employment for January 2014 averaged 922,000, an annual reduction of 0.6%, the lowest one since April 2013. Furthermore, FY2014 YTD total non-farm payroll employment showed a 2.2% decrease with respect FY2013 YTD. Electric power generation for January 2014 totaled 1,678.2 million kwh, an annual decrease of 2.1%. Electricity generation for FY2014 YTD was 3.8% less than during the same period of FY2013. Cement sales for January 2014 totaled 1.22 million bags, registering an annual reduction of 12.6%. Sales for FY2014 YTD were below 16.0% with respect to the figure for the same period of FY2013. * 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. 12
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 Index (January 1980 = 100) In January 2014, the GDB-EAI reflected a 3.5% y-o-y reduction, after showing a 4.3% y-o-y decrease in December 2013. GDB Economic Activity Index 140 10% 135 8% 6% 130 125 120 115 110-5.8% -5.0% -2.8% -3.1% -4.0% -3.8% -4.6% -3.5% -4.1% -2.3% -2.6% -3.3% -2.6% -2.3% -2.2% -2.8% -2.7% -1.9% -1.7% -2.3% -1.4% -1.9% 2.7% 2.4% 1.8% 2.0% 2.1% 1.5% 1.5% 1.2% 1.4% 0.9% 1.0% 1.2% 0.6% 0.1% -0.6% -1.6% -2.0% -2.3% -2.3% -3.4% -4.0% -3.8% -3.7% -3.5% -4.4% -4.1% -4.3% 4% 2% 0% -2% -4% -6% Percent 105-8% 100-10% Month Value (Left Hand Side) Year over year percent change (Right Hand Side) 13
154.3 154.2 153.6 155.1 156.2 156.4 154.8 154.9 155.5 155.8 156.4 155.7 155.9 154.9 154.5 154.2 154.2 153.4 153.0 152.7 153.8 154.9 155.1 154.6 153.8 152.5 151.5 150.6 151.3 151.3 151.9 151.3 151.1 150.7 150.4 149.2 148.6 148.2 147.5 147.2 146.4 146.4 145.6 145.3 144.7 144.1 143.2 143.0 142.1 140.6 138.9 138.2 137.3 137.3 137.2 136.6 136.4 135.5 135.4 135.2 133.9 133.7 133.3 133.9 133.5 132.2 130.9 130.9 131.6 132.3 131.8 130.8 130.4 130.5 130.3 130.1 129.8 129.6 128.6 127.9 129.1 130.5 132.0 131.9 132.3 132.4 131.6 131.8 131.4 131.9 131.2 131.3 132.2 133.2 133.9 132.7 131.6 130.3 129.0 128.8 128.4 127.4 126.0 125.6 127.2 128.3 128.3 127.0 127.0 Index (January 1980 = 100) In 2005 the EAI reached its highest level, and in 2006 it started to show significant year-over-year reductions. 160 155 150 145 140 135 130 125 120 115 110 105 100 1.9% 1.3% 0.6% 0.5% Highest point of the index (Nov. 2005) 2.6% 2.2% 1.0% 1.1% 1.0% 0.6% 0.4% 0.5% 0.6% -0.2% 2.1% Starting point of continuous y-o-y declines (Apr. 2006) -0.6% -0.6% -0.9% -0.7% -0.7% -1.3%-1.1% -1.1% -0.9% -1.4% -1.4% -1.4% -1.6% -1.9% -1.9% -1.9% -1.8% -2.3% -2.7% GDB Economic Activity Index -3.0% -3.5% -3.4% -2.3% -2.8% -2.7% -2.8% -3.1% -3.3% -3.5% -3.9% -3.8% -4.2% -4.2% -4.2% -4.0% -4.1% -4.4% -4.4% -4.7% -4.6% -5.1% -5.0% -5.5% -5.4% -5.9% -5.8%-5.7% -5.8% -6.1% -6.0% -6.0% -6.2% -6.2% -3.2% -3.2% First y-o-y increase (Nov. 2011) -1.4% -1.7% -1.9% -1.9% -2.3% -2.3% -2.2% -2.3% -2.6% -2.6% -2.8% -2.7% 2.7% 2.4% 2.0% 2.1% 1.8% 1.5% 1.5% 1.4% 1.2% 1.2% 0.9% 1.0% 0.6% 0.1% Return to the y-o-y reductions (Jan. 2013) -0.6% -1.6% -2.0% -2.3% -2.3% -3.4% -3.5% -4.0% -3.8% -3.7% -4.1% -4.4% -4.3% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% -7% -8% -9% -10% Percent Month Value Year-on-year percent change 14
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 (January 1980 = 100) The complete series of the EAI, which starts in January 1980, shows the recessions of FY1982 and FY1983, the mild recession of FY1991, the recession of 2001, and the sharp but temporary effects of two hurricanes. It also shows the path of the Index since the beginning of the current recession. 160 GDB Economic Activity Index 150 140 130 120 Hurricane Georges 110 100 Hurricane Hugo 90 80 Month 15
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-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 January 2014 averaged 922,000, an annual reduction of 0.6%. Cement Sales (Cement bags sold, in thousands) 2,000 1,800 1,600 Cement Sales for January 2014 totaled 1.22 million bags, an annual decrease of 12.6%. 1,400 1,200 1,000 Sources: BLS and GDB * Not seasonally adjusted. 16
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-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 January 2014 was 92.8 million gallons, for an annual increase of 15.1%. Electric Power Generation (Millions of kwh) 2,500 2,000 1,500 1,000 Electric power generation for January 2014 averaged 1,678.3 million kwh, an annual decline of 2.1%. 500 0 Sources: GDB, PRHTA and PREPA *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. 17
Description of the GDB-Economic Activity Index 18
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) 19
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 20
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. 21