A Bright Future for Puerto Rico Manufacturing

Manufacturing has been an important industry for Puerto Rico since Operation Bootstrap shifted the focus on the Island from agriculture to manufacturing, beginning in the late 1940s. Between 1950 and 1960, manufacturing jobs increased from 55,000 to 82,000. By the 21st century, manufacturing accounted for 46% of the Gross Domestic Product of Puerto Rico — but in May of 2017, according to the Bureau of Labor Statistics, there were only 57,100 jobs in manufacturing.

Operation Bootstrap was not an unmixed blessing for the Island.Tax incentives which were later found to benefit the multinational corporations more than the people of Puerto Rico, at very high costs to the federal government, made industrialization look better for the territory than it turned out to be. In fact, the 100 new manufacturing plants built in the 1950s didn’t provide enough jobs to make up for the collapse of the agriculture and needlework industries during the same time period.

Nonetheless, manufacturing has provided some jobs in Puerto Rico since the mid 20th century, and Puerto Rico has the workforce needed for manufacturing in the future. Modern manufacturing relies less on large numbers of unskilled workers than on automation and the infrastructure needed for strong supply chain logistics, but skilled workers are essential to manufacturing. Puerto Rico offers a skilled workforce and the “Made in America” label at lower labor costs than any of the States.

The Puerto Rico Manufacturers Association and the Puerto Rico Institute of Statistics are together conducting monthly surveys of manufacturers in Puerto Rico to identify the Purchasing Managers Index (PMI) for manufacturing in the territory.

The PMI is generally considered a measure of the health of the sector. It is based on five factors:

  • new orders
  • inventory levels
  • production
  • supplier deliveries
  • employment environment

At a glance, a PMI above 50 indicates expansion and a PMI below 50 shows contraction. 50 is therefore the threshold between improvement in a sector and decline in that sector.

The PMI for manufacturing in Puerto Rico was down in February compared with January, across all five of the metrics included. At 50.7, it was still above the threshold, suggesting that manufacturing is in fact picking up steam since Hurricane Maria. In September, the PMI was 33.1, with every respondent to the survey reporting that their facilities had been affected by the hurricanes.

One third of manufacturing businesses still didn’t have reliable electricity in February. Nearly half were still lacking reliable telecommunications. Once these basic services are fully restored, the data indicate that Puerto Rico should be in a stronger position to expand its manufacturing base.

New orders and production were both above the threshold in February, in spite of the continuing infrastructure problems. These two factors had been above the threshold for two and four months, respectively. Inventory levels were below the threshold, while both employment and delivery maintained levels of 50, precisely at the threshold.

This bounce back for Puerto Rico’s manufacturing sector, even if it shows some volatility, promises to be good news for Puerto Rico’s future. If the rebuilding of the Island solves the longstanding problems with energy and logistics, Puerto Rico could be an increasingly inviting location for manufacturing in the years to come.

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