Jamaica Economic Intelligence | Q3 2019 | July–September 2019
Key Findings
- The Federal Reserve cuts rates on July 31 for the first time since December 2008 — a 25-basis-point reduction to 2.0–2.25 percent, called a “mid-cycle adjustment”; a second cut follows on September 18
- The US-China trade war reaches peak intensity: new tariffs on $300 billion in Chinese goods announced August 1, China retaliates with $75 billion in counter-tariffs, first tranches go live September 1 before talks are scheduled to resume in October
- Britain’s Supreme Court rules unanimously on September 24 that Boris Johnson’s prorogation of Parliament was unlawful and void; Parliament returns to a Brexit confrontation whose resolution remains entirely unclear
- Hong Kong’s protests intensify through Q3 — the airport is shut down for two days in August, the extradition bill is formally withdrawn on September 4, but the movement’s demands have expanded and the demonstrations continue
- A sudden US repo market crisis in mid-September forces the Federal Reserve to intervene with open market operations for the first time in a decade, signalling unexpected stress in short-term funding markets
- Jamaica’s summer season completes the sixth consecutive annual tourism record; unemployment holds below 9 percent, the first time in the island’s modern economic history that three full years of sub-10-percent readings are within reach
It is July 31, 2019, and Jerome Powell is lowering interest rates for the first time since December 2008. The federal funds rate is coming down from 2.25–2.5 percent — the peak of the tightening cycle that began in December 2015 — to 2.0–2.25 percent. The move is unanimous. It is called, with a precision that markets will spend the next six weeks debating, a “mid-cycle adjustment.” On the trading floors of New York and London, the debate begins immediately: is this the first of three cuts? Or the first of ten? Does “mid-cycle adjustment” mean the expansion is healthy and needs a single insurance cut? Or does it mean the expansion is sicker than the data shows and the Fed is beginning an easing cycle that will take rates back toward zero? In Jamaica, the debate is academic. The summer hotel season began in June with higher occupancy than the comparable 2018 period. The advance booking data for the winter season is running ahead of last year. The sixth consecutive tourism record is not a question. The only question is the margin.
The Fed Cuts: Mid-Cycle or Full Easing?
The Federal Reserve’s July 31 rate cut was, in its immediate context, the most widely anticipated and already-priced monetary policy action in years. Markets had been pricing a cut at near-certainty since the June FOMC meeting’s “act as appropriate” language. The actual decision — 25 basis points, unanimous, labelled a “mid-cycle adjustment” — was therefore notable not for its existence but for its framing. Powell’s press conference, which declined to pre-commit to a specific cutting path and characterised the move as a response to trade uncertainty and global growth deceleration rather than as the beginning of a sustained easing cycle, produced a brief market sell-off in the hours that followed: investors who had hoped for a stronger signal of continued cuts interpreted the “mid-cycle adjustment” language as resistance. The disappointment was temporary. Within days, the trade war escalated again and the case for further cuts strengthened materially.
The second cut came on September 18 — another 25 basis points, bringing the target range to 1.75–2.0 percent. This time, three FOMC members dissented: two who preferred no cut, one who preferred a larger 50-basis-point reduction. The division reflected genuine uncertainty about the cutting cycle’s character. Governors Esther George and Eric Rosengren dissented in favour of holding — arguing that the US economy was fundamentally sound and that preemptive cuts risked financial stability. President James Bullard dissented in favour of a larger cut — arguing that the global slowdown and trade uncertainty warranted more aggressive easing. Powell’s majority — steady, 25 basis points, wait and see — was holding the centre of a policy debate that had genuinely widened.
A third Q3 event tested the Fed’s situational awareness in a different direction. On September 16–17, the repo market — the short-term funding market through which banks and financial institutions borrow against collateral overnight — experienced a sudden and dramatic spike in rates, with the overnight rate for repurchase agreements briefly hitting 10 percent against a target federal funds rate of 2.25 percent. The dislocation, which reflected a combination of quarterly tax payments, Treasury settlement and reserve scarcity, forced the Fed to intervene with open market operations — purchasing Treasury securities and mortgage-backed securities in the market — for the first time in a decade. The immediate crisis was resolved within days. But the repo market episode was a reminder that the plumbing of the financial system, eight years into the post-crisis expansion, contained stress points that had not been fully visible in the macroeconomic data.
Trade War Peak: The Full Tariff Architecture
The G20 Osaka ceasefire that had ended Q2 on an optimistic note lasted less than five weeks. On August 1, Trump announced that the remaining approximately US$300 billion of Chinese goods not yet subject to tariffs would be covered at 10 percent beginning September 1. China’s response, announced on August 23, was a new round of tariffs of 5–10 percent on US$75 billion of US goods. On the same day, Trump responded to the Chinese announcement with a tweet ordering American companies to “immediately start looking for an alternative to China” — and raised the tariff rates on existing tranches: 30 percent on the US$250 billion already covered, 15 percent on the new US$300 billion. The escalation was, in its rhetorical scope, more aggressive than anything the confrontation had previously produced.
The September 1 implementation was partial rather than comprehensive: tariffs went live at 15 percent on approximately US$112 billion of Chinese goods, with the remaining tranche — covering consumer electronics, laptops, mobile phones and toys — delayed to December 15 to avoid disrupting the US holiday shopping season. China’s tariffs on US goods also took effect September 1. The September 5 announcement that US and Chinese negotiators would meet in Washington in early October — the first formal meeting since May — provided the same pause in escalation that every previous truce announcement had provided, without resolving any of the underlying disagreements. By September’s end, US-China tariff coverage was the highest in the confrontation’s history, and the December 15 consumer electronics tranche remained on a path to taking effect if the October negotiations produced nothing.
Jamaica’s relationship to the trade war’s Q3 peak was, by this point in the series, a familiar one. Direct exposure remained minimal: Jamaica did not export manufactured goods to either party at a scale that the tariffs touched. The indirect exposures — through US consumer confidence, global growth momentum and the dollar’s level — were each moderated by the Fed’s two Q3 cuts, which offset the trade uncertainty’s dampening effect on the US consumer and provided an accommodative monetary backdrop that maintained the tourism and remittance flows Jamaica depended on. The trade war had been intensifying for eighteen months. Jamaica’s macroeconomic data had been improving throughout.
Parliament Returns: Britain’s Constitutional Crisis
Boris Johnson’s prorogation of Parliament on August 28 — a five-week suspension running from September 9 to October 14, which Johnson characterised as routine parliamentary process for a new government and opponents characterised as an attempt to prevent Parliament from acting to block a no-deal Brexit — produced the most acute constitutional confrontation in British political history since the 1909 Parliament Act crisis. The legal challenge moved with extraordinary speed: the Scottish Court of Session ruled the prorogation unlawful on September 11; the Supreme Court, hearing the case on an emergency basis on September 17–19, ruled unanimously on September 24 that the prorogation was unlawful and void. Parliament reassembled on September 25.
The Benn Act, passed by Parliament before prorogation on September 4, required the Prime Minister to seek a further Article 50 extension from the European Union if no deal had been approved by Parliament by October 19. Johnson had publicly and repeatedly stated that he would not request an extension, creating a genuine constitutional impasse between parliamentary statute and executive will. Whether Johnson would comply with the Benn Act, find a legal workaround, or somehow secure parliamentary approval for a deal before October 19 was the question that the quarter left unresolved. For Jamaica, the sustained uncertainty had measurable effects: the pound was trading at its weakest sustained levels against the dollar since the mid-1980s, the UK consumer’s confidence was depressed, and British outbound travel to the Caribbean was running at suppressed levels that the Brexit referendum’s June 2016 vote had initiated and three years of subsequent political chaos had maintained.
Hong Kong’s Long Summer
The Hong Kong protest movement that had emerged in June’s demonstrations against the extradition bill entered Q3 with no sign of the resolution that Chief Executive Lam’s June 15 suspension announcement had appeared to offer. Through July and August, the protests expanded in geographic scope, tactics and intensity. Airport authorities suspended all flights from Hong Kong International Airport on August 12 and 13 as protesters occupied the terminal — the first time in the airport’s history that operations had been suspended by political action rather than weather or technical failure. Hong Kong’s equity market fell; the Hong Kong dollar’s peg to the US dollar held, but the costs of maintaining it in a period of capital outflow pressure were rising. On September 4, Lam announced the formal withdrawal of the extradition bill — the protesters’ original demand. The protests did not stop. They had evolved from a single-issue campaign into a broader movement against what its participants described as Beijing’s encroachment on Hong Kong’s promised autonomy.
The Hong Kong situation’s implications for Jamaica were structural rather than acute: the territory’s instability signalled that the assumptions underpinning the Asia-Pacific financial architecture were being tested in ways that could affect global capital flows, risk appetite for emerging markets, and the economic trajectory of China — Jamaica’s secondary trading partner and an increasingly important source of tourism visitors and direct investment. None of those effects were visible in Q3’s data. But the Hong Kong protests were an episode whose resolution, or continued escalation, would shape the investment environment for the year ahead.
Jamaica’s Sixth Record: Confirmed
The summer tourism season — Jamaica’s peak period for North American family travel through June, July and August — delivered the quarter’s most unambiguous result for the island’s economy: the sixth consecutive annual stopover arrivals record was confirmed. The Jamaica Tourist Board’s September year-to-date data showed that 2019 total stopover arrivals were running meaningfully ahead of the comparable 2018 period at the same point in the year. With Q4’s winter booking season — historically the year’s strongest period — still ahead, the full-year margin of outperformance above 2018’s approximately 2.47 million was tracking to be the widest in the consecutive record sequence. Total stopover arrivals for calendar 2019 were projected to approach or exceed 2.7 million, a figure that would represent a step-change in the island’s tourism ceiling.
The labour market data released through Q3 continued to confirm the structural shift that had been building since the reform period’s employment generation began accelerating in 2016. Jamaica’s unemployment rate, which had broken below 10 percent for the first time in the modern era in the July 2018 survey, was tracking below 9 percent in the comparable July 2019 reading — a further improvement that, if sustained through the October survey, would mark the beginning of a third full year of single-digit unemployment. In the context of what was known about Jamaica’s structural unemployment dynamics in the pre-reform era, when unemployment below 12 percent had been treated as an aspirational target rather than an operational floor, the compression of the rate into the 8–9 percent range was a data point whose significance was not yet fully digested in domestic or international discussion of the island’s economic transformation.
The Bank of Jamaica’s monetary policy framework continued its transition toward formal inflation targeting through the quarter. The BOJ Amendment Act, which would embed the central bank’s independence and inflation-targeting mandate in law, was advancing through the legislative process. The policy rate — 1.5 percent, following the cuts of 2018 — remained at historically accommodative levels as inflation held within the bank’s indicative range and the domestic credit cycle accelerated without showing overheating signs. The institutional transformation that the reform period had begun was, in Q3 2019, approaching a legislatively anchored completion.
What This Means
Homeowners close Q3 2019 in the most well-supported property market environment in Jamaica’s modern economic history — and with the external monetary conditions that the reform period was specifically designed to survive now turning actively supportive. Two Fed cuts in a single quarter have reduced the external rate pressure that had been the primary risk to emerging market borrowing costs and sovereign spreads. NHT mortgage rates, private sector credit conditions and the cost of government debt service are all at historically favourable levels. The summer tourism record, confirmed in Q3, means the employment and income generation that sustains residential demand is running at the highest sustained level since before the 2008 crisis. The fundamental property case has not weakened since 2015. It has strengthened continuously.
Renters are looking at the Q3 labour market data — unemployment tracking below 9 percent — and processing what it means: that the tightest labour market conditions in at least two decades are now sustained through a third calendar year. The wage pressures that sub-10-percent unemployment began generating in 2018 are compounding. Workers in the tourism, BPO and construction sectors are negotiating from positions of relative strength that would have been unrecognisable in 2013. The structural housing supply gap remains the unresolved constraint on the quality of those workers’ lives. The macroeconomic momentum to address it has never been more favourable.
Developers processing Q3 2019 are looking at a sixth consecutive tourism record confirmed, unemployment below 9 percent for the first time in two decades, two Fed rate cuts removing the external rate risk that had been the most significant macro headwind for Caribbean property investment, and a Caribbean competitive landscape whose restoration of pre-hurricane room inventory is proceeding but will not be complete before 2021. The convergence of those signals is not ambiguous. The Jamaican residential development opportunity — particularly at the affordable and mid-market segments where buyer pool expansion is most acute — is as clearly evidenced as any property market opportunity the island has produced.
Businesses across Jamaica enter Q4 2019 with a domestic environment that is, by every available measure, the most constructive since the reform period began. The trade war’s Q3 escalation — real in its global growth implications, distant in its direct Jamaica effects — was buffered by Fed cuts that maintained US consumer spending. The Brexit situation’s October resolution — whatever form it takes — will determine whether the UK consumer’s confidence begins a recovery that would support the pound, improve British visitor spending power and begin reversing the three-year suppression of Jamaica’s UK tourism segment. A deal, or a no-deal avoided, would be positive. The domestic operating conditions are not waiting for it.
Diaspora Jamaicans monitoring Q3 2019 have watched the Federal Reserve do something in their home country’s favour for the first time since the reform period began: actively cut rates, twice, reducing the external monetary pressure that Jamaica’s institutional architecture had been specifically built to withstand. The reform’s achievement was always that it would survive the test; the bonus is that the test is now being withdrawn. For those in the United Kingdom watching the constitutional crisis around Brexit with a mixture of exasperation and anxiety, the pound’s weakness is a personal financial reality as well as a tourism data point. The Jamaica investment case’s US-dollar denomination insulates it from that specific storm. The sixth consecutive record year provides the most recent evidence that the thesis is intact.
Outlook
The annual review, due in January 2020, will assess a year that has been, in its external environment, the most complex since 2016 — and, in Jamaica’s domestic data, the most straightforwardly positive since the reform period began. Two Fed cuts, a trade war at peak intensity, a Brexit constitutional crisis, Hong Kong’s protests and a US repo market shock all competed for global attention through a Q3 that, from Jamaica’s vantage point, was primarily notable for confirming the sixth consecutive tourism record and sustaining sub-9-percent unemployment.
Q4 2019 will be shaped by the Brexit outcome — Johnson will either find a deal or be forced to seek an extension by the Benn Act — and by the trajectory of the US-China October negotiations. Either resolution produces a less uncertain external environment than the one Q3 delivered. Jamaica’s winter booking season is already advanced; the early data is pointing to another strong quarter. If the October talks produce even a partial US-China deal, and if Brexit produces an extension rather than a cliff edge, Q4’s global conditions will be materially more supportive than Q3’s. The sixth record year is confirmed. The seventh will begin its counting in January.
Jamaica Economic Intelligence is an independent data-driven journalism series tracking Jamaica’s economic performance across the housing, tourism, fiscal and monetary sectors. Historical data drawn from Bank of Jamaica, Statistical Institute of Jamaica, International Monetary Fund and Jamaica Tourist Board publications. This report covers Q3 2019: July–September 2019.
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