Morrison

Notwithstanding re-ports that the United States economy is emerging from recession, Americans are in a funk as the jobless rate is peaking at levels not seen for over a quarter century. Even worse, for every five persons seeking employment there is only one job opening. In Jamaica, there is no evidence that the economic downturn is ending and so it is realistic to assume that job losses could continue rising beyond 40,000, which has been the figure most widely quoted. These job losses are the first setback of this magnitude since the collapse of the garment industry and financial sector in the mid to late 1990s.

The combined impact of the financial meltdown and the crisis in the US job market is already showing up in startling data on poverty, levels in that country. According to this data, one in every five American children is living in poverty and in the case of African-American children it is a startling 35 per cent. That Americans with their welfare system could be facing such a tide of rising poverty levels is a dire warning for Jamaica, even though we did not suffer the financial fallout that hit the US economy.

economic crisis effects

The effects of the economic crisis on Jamaica have been manifested in the steep fall-off in investment, par-ticularly foreign direct investment this year. Whereas there were multiple major investment projects afoot from around 2003 that included airport modernisation, hotel construction, highway development, sea-port expansion and water and sewerage treatment installations simultaneously, the stream of investment activity has slowed considerably.

The ensuing job losses, in large part, are a reflection of this, as employment in the construction sector had expanded significantly up to 2008. The bauxite sector, which had also pulled in over US$1.4 billion of capital investment over the same period, has not only seen this flow abate, but has experienced a slump in production, triggering huge job losses, both directly and indirectly. Since the construction sector is the main absorber of unskilled labour and of people at the lower rung of the economic ladder, job losses in the sector are bound to push up poverty levels, especially in the towns.

main impact

We can expect to see the main impact in the tourism belt along the northern parishes where major investment has been made in new hotel, rooms, which have now been completed. Jobs have also been lost in the hotels as operators have been forced to cut costs because their revenues have been buffeted by the turbulence in the travel industry. The growth in visitor arrivals, though modest, has helped to moderate these job cuts.

In the mid-island parishes that are heavily dependent on the bauxite industry, plant closures have dealt severe blows to their economies and a big portion of the workforce has been sidelined. The bauxite operations provide support to farmers, schools and various other aspects of community life, including water supplies, which are likely to be curtailed. We should not underestimate how widespread will be the effects of these closures on life in the rural communities across St Ann, St Catherine, Clarendon, Manchester and St Elizabeth.

Perhaps the fall in remittances arising from the economic crisis is the factor that will have the most pervasive effects on poverty levels. In rural communities, townships, and in our cities, many Jamaican families depend on monies sent by relatives abroad to supplement their incomes, or as the main source of income in some instances. The vast increase in remittance inflows over the past decade and a half and the declining incidence of poverty is the most telling evidence of the crucial role played by these inflows in alleviating poverty levels in Jamaica [even as they have greatly distorted how people spend money].

Official data show that remittances increased more than three-fold between 2000 and 2008 from under US$700 million in 1999 to just over US$2 billion in 2008. Over that 10-year period, the inflows increased substantially every year, but in 2009, we are experiencing the first decline since the 1980s. For the first nine months, remittance inflows have, in fact, declined by nearly 15 per cent, and this must be influencing the drop in consumer spending, including on food, utilities, and living expenses.

most affected

The prospects for recovery in any of the areas where the impact of the global crisis has been felt most heavily in Jamaica are still in doubt, except maybe for the tourism sector. With most economies remaining weak and company profits depressed, investment activity cannot be expected to rebound in the short term. Estimates of global investment flows point to a steep drop in most parts of the world, with China and India being notable exceptions. Public investment is the area most active, but Jamaica's tight fiscal situation will limit such activity here and, hence, will not be able to compensate for the downturn that has taken place in private sector investment.

With US and UK unemployment moving up to peak levels, the massive loss of wealth from the financial meltdown and still high housing foreclosure rates, it is unlikely that there will be an early turnaround in the inflows of remittances to Jamaica. Unemployment is a key indicator of spending ability and consumer sentiment. We should, therefore, be tracking US unemployment rates to anticipate when Jamaicans dependent on remittances can expect an easing of the fall-off. Unfortunately, some reversal in the steady progress made in reducing poverty levels in the past decade seems likely.

Dennis Morrison is an economist. Feedback should be sent to columns@gleanerjm.com.