The New York Fed has posted a report on Puerto Rico’s economy. Broadly speaking, the news is positive. While the Island has lost 10% of its population in the past decade after previous decades of even more dramatic loss, job growth has increased by 9.2% and unemployment is down to 5.6%. The labor force participation rate is significantly lower than its peak in 2006, but has returned to the levels seen before Hurricane Maria in 2017 and the pandemic in 2020-2022.
Employment
Manufacturing is the main driver of Puerto Rico’s economy, and employment in manufacturing has recovered to the level it showed in 2012. It is still far lower than the level of manufacturing employment in 2000, and even earlier years, which is reflective of reduced manufacturing through the nation in its entirety, across the 50 states as well as U.S. territories.
Manufacturing represents 43% of Puerto Rico’s GDP. While some of this represents transfer payments for multinational corporations rather than actual prosperity for the Island, Puerto Rico is an important center for pharmaceuticals and medical devices.
Retail accounts for about 20% of Puerto Rico’s economy. Employment in this area is recovering, though local entrepreneurs in this space are struggling to compete with national chains and online stores.
Financial services and real estate is responsible for about another 20% of the economic activity in Puerto Rico. This is one of the most dynamic industries in the territory, and is currently employing record numbers of people.
Tourism has increased to about 10% of the economy, from 2% a decade ago. This field of employment has been on a strong upward trajectory for decades, with a sharp dip in the Hurricane Maria-pandemic years. The Island’s tourism industry is making great strides and employment in the sector continues to soar. However, the gains have been so impressive only because they were historically so low compared with other tourist destinations.
Agriculture used to be a primary source of work in Puerto Rico, but now represents just about 1% of the economy. Government employment, once a major source of jobs, has been intentionally reduced, while education and healthcare are on the rise. All in all, employment is a bright spot for the Island.
Challenges in the economy
The Fed concludes, “The island has made great progress in resolving and rebounding from its extensive fiscal crisis.” Certainly this is good news. But about 41% of Puerto Ricans live at or below the poverty level, more than twice the poverty rate of Mississippi, the poorest U.S. state. Much of the GDP is illusory, showing as income for Puerto Rico funds which actually benefit the national or global corporations and wealthy individuals who use Puerto Rico as a tax shelter.
The average household income in Puerto Rico is just over $23,000 per year, while the average price for a house is $122,000. This means that the average person in Puerto Rico cannot afford to buy a home — at the same time that real estate sales on the Island make headlines with prices like $45,000,000. Gentrification adds to housing challenges. 85% of food consumed in Puerto Rico is imported, and the territory has the highest sales tax on food of any jurisdiction in the U.S. — typically two to three times that of the states. Energy costs are also much higher in Puerto Rico than in the states. Only Hawaii has higher prices for electricity. The cost of living is therefore quite high, while the incomes are generally low.
Puerto Rico also has an unusually high rate of income inequality — greater than any other part of the United States. “While many argue that the United States has an untenable distribution of wealth with only 10% of households earning over $200,000 a year, in Puerto Rico only 1.4% of households make over $200,000 a year,” CENTRO points out. “Meanwhile, poverty is widespread: 25% live with incomes of $10,000 a year or less (as compared to 6% in the general US).”
Residents of the Island rely heavily on federal benefits, with 40% relying on food stamps and half needing Medicaid for health care. Yet both of these federal programs offer less in Puerto Rico than in the states in spite of the greater need.
The macro-level economic indicators show signs of improving, but there is work to be done to spread economic vibrancy throughout the U.S. territory.
