Economic Activity Index (“GDB-EAI”)

May 2014

General Commentary – May 2014

Total non-farm payroll employment for May 2014 averaged 932,100, an annual increase of 0.4%,

while FY2014 YTD total non-farm payroll employment showed a 1.3% decrease with respect to the

corresponding figure for FY2013. During this month, total private employment increased by 1.8% y-o-

y (12,000 jobs), while total public employment decreased by 3.4% y-o-y (8,400 jobs).

Electric power generation for May 2014 totaled 1,784.4 million kWh, an annual reduction of 3.3%.

Electricity generation for FY2014 YTD was 3.1% less than during the same period of FY2013.

The preliminary number for gasoline consumption* in May 2014 was 90.0 million gallons, 0.5% below

May 2013. The FY2014 YTD gasoline consumption number was 2.1% below the corresponding figure

for FY2013.

Cement sales for May 2014 totaled 1.25 million bags, registering an annual reduction of 10.8%. Sales

for FY2014 YTD were 14.2% below the figure for the same period of FY2013.

2

The GDB-EAI registered a 1.1% year-over-year reduction in May, after showing a 1.3% y-o-

y decrease in April 2014, holding up with a stabilization scenario.

* 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.

3

• The GDB-EAI registered a 1.1% year-over-year reduction in May, after showing a 1.3% y-o-y decrease in April

2014, holding up with a stabilization scenario.

-5.8%

-5.0%

-4.0%

-3.1% -2.8%

-3.8%

-4.6% -4.1%

-3.5%

-2.3% -2.6%

-3.3% -2.6% -2.3% -2.2%

-2.8% -2.7%

-1.9% -1.7% -2.3%

-1.9% -1.4%

0.1% 0.9%

1.5% 1.5% 1.0% 1.2% 1.2%

1.8% 2.0% 2.7% 2.4%

2.1% 1.4%

0.6%

-0.6%

-1.6% -2.0% -2.3% -2.3%

-3.4% -4.0%

-4.4% -3.8% -3.7%

-4.1% -4.3%

-3.4%

-2.5%

-1.0% -1.3%

-1.1%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

100

105

110

115

120

125

130

135

140

Jan

-10

Mar

-10

May

-10

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar

-11

May

-11

Jul-

11

Sep

-11

No

v-1

1

Jan

-12

Mar

-12

May

-12

Jul-

12

Sep

-12

No

v-1

2

Jan

-13

Mar

-13

May

-13

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Mar

-14

May

-14

Percen

t In

dex

(Ja

nu

ary

19

80

= 1

00

)

Month

GDB Economic Activity Index

Value (Left Hand Side) Year over year percent change (Right Hand Side)

4

• 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 recession and its recent signs of stabilization.

80

90

100

110

120

130

140

150

160Ja

n-8

0

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

Ind

ex

(Jan

. 19

80

= 1

00

)

Month

GDB Economic Activity Index

5

Total non-farm payroll employment for

May 2014 averaged 932,100, an annual

increase of 0.4%. During this month,

private employment increased by 1.8%

y-o-y (12,000 jobs), while public

employment decreased by 3.4% y-o-y

(8,400 jobs).

Sources: BLS and PREPA

* Not seasonally adjusted.

GDB Economic Activity Index Components

Total Non-Farm Payroll Employment* (Thousands of jobs)

860

880

900

920

940

960

980

1,000

Jan-1

0

Jun-1

0

Nov-1

0

Apr-

11

Sep-1

1

Feb-1

2

Jul-

12

Dec-1

2

May-1

3

Oct-

13

Mar-

14

Electric power generation for May 2014

averaged 1,784.4 million kWh, an annual

reduction of 3.3%.

Electric Power Generation (Millions of kWh)

0

500

1,000

1,500

2,000

2,500

Jan-1

0

Jun-1

0

Nov-1

0

Apr-

11

Sep-1

1

Feb-1

2

Jul-

12

Dec-1

2

May-1

3

Oct-

13

Mar-

14

6

Sources: PRHTA and GDB

* Not seasonally adjusted.

Cement Sales for May 2014 totaled 1.25

million bags, an annual decrease of 10.8%.

GDB Economic Activity Index Components

Cement Sales (Cement bags sold, in thousands)

1,000

1,200

1,400

1,600

1,800

2,000

Jan-1

0

Jun-1

0

Nov-1

0

Apr-

11

Sep-1

1

Feb-1

2

Jul-

12

Dec-1

2

May-1

3

Oct-

13

Mar-

14

The preliminary estimate of gasoline

consumption* for May 2014 was 90.0

million gallons, for an annual decrease of

0.5%.

Gasoline Consumption (Millions of gallons)

0

20

40

60

80

100

120

Jan-1

0

Jun-1

0

Nov-1

0

Apr-

11

Sep-1

1

Feb-1

2

Jul-

12

Dec-1

2

May-1

3

Oct-

13

Mar-

14

*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.

7

Description of the

GDB-Economic Activity Index

8

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)

GDB-EAI Highlights and Composition

GDB Economic Activity Index Highlights

9

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.

Description of the GDB-EAI

Relationship on the levels: FY1981-FY2012

3,000

4,000

5,000

6,000

7,000

8,000

80

90

100

110

120

130

140

150

160

GN

P54

(Million o

f dollars

at

1954 p

rices)

GDBEAI (January 1980=100)

y = 49.495x – 408.29 R² = 0.9773

Real Gross National Product as a function of the

GDB Economic Activity Index

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

-8% -6% -4% -2% 0% 2% 4% 6% 8%

GN

P54 A

nnual

Gro

wth

GDBEAI Annual Growth

Relationship on the growth rates: FY1982-FY2012

y = 0.7421x + 0.0062 R² = 0.8949

Sources: GDB

Appendix

10

Clarification about the interpretation of

the GDB-EAI figures

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

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.

Clarification about the interpretation of

the GDB-EAI figures (2)

12

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.

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%

Clarification about the interpretation of

the GDB-EAI figures (3)

13

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.

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

An

nu

al G

row

th R

ate

s

Fiscal Year

Growth Rates Comparisons: Real GNP, and real GNP estimated with the GDB-EAI

Real GNP annual growth rate Real GNP annual growth estimated using the EAI

14

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.

Disclaimer