America
Quo Vadis World Economy-II: Uneven blows of inflation and slowing operations
US Treasury Secretary Janet Yellen first paid homage to a slave memorial in Senegal, then spoke to farmers in a remote village in Zambia, and eventually visited a job retraining facility in South Africa’s coal region on tour to convince the locals of the good intentions of her country.
“We’ve seen inflation come down substantially,” Yellen said about the American economy in South Africa, although “there can be hiccups” and she “wouldn’t predict month-to-month-type changes.”
Despite her belief that rental prices substantially contribute to inflation, Yellen expects that it would come out over the next five or six months, and this cooldown would deaccelerate the price rise. She also said that goods prices have actually been falling, but service prices are rising more rapidly.
Considering the 2.9 percent growth in the fourth quarter is “solid,” Yellen emphasized that slower growth is desirable in this high-inflation environment.
Interim balance sheet in inflation
The New York Fed has published a study that explores which income groups are more affected by inflation. The findings show that inflation had varying effects on different groups in 2021 and 2022.
Middle-income households are hit worst by inflation in 2021. Those with an annual earning between $50,000 and $150,000 are considered middle-incomed.
This income group was most suffered from the rocketed prices of used cars and motor fuel. The lower-income group is more likely to rely on public transportation, while the wealthy are more likely to purchase brand-new cars, and their spendings on gas constitute a much less portion of their income. These made middle-income households the main target of inflation. This outcome is partially attributable to differences in consumption patterns between the well-off and the poor, between peasants and urbanites.
Fuel and used car costs have fallen in recent months. Meanwhile, the rising rental and goods prices are hurting. Inflation now primarily affects the lower-income population since these two are among the necessary expenditures.
For this reason, the poorest 40 percent of the population bears an extra 0.3% inflation.
For example, rural residents experienced 2 percent higher inflation than the national average in the year leading up to February 2022. The same regions are now living below-average inflation.
In early 2022, black and Hispanic households experienced a 1 percent extra inflation rate than white households. As it turns out, the inflation for non-college-educated people is also more severe. These groups are shown to be getting closer to the average inflation rate.
Food and rental prices rise faster than the inflation average (10.6 percent, 7.9 percent, and 7.1 percent, respectively). Therefore, what Nobel Prize-winning economist Paul Krugman argued in New York Times last November, “inflation does not hurt the poor disproportionately,” is not true. Krugman bases his argument on the fact that the proportion of pay increases for low-income employees is higher than that for high-wage ones.
The poorest quarter of Americans spends more than half of their income on housing, food, and healthcare, according to statistics from the Bureau of Labor Statistics in the United States. The high-income group disposes of a far more significant percentage of their money to dining out, self-entertainment, vacation, and brand-new and used cars than the low-income group.
Prices of basic needs have risen more rapidly than non-essential goods, as the general and historical tendency suggests.
Decline in consumer spending
It is generally agreed that falling consumer spending is a significant contributor to the recent decline in the inflation rate.
According to statistics released last week, consumer demand fell in December by 0.2% compared to the previous month. This rate rises to 0.3% after adjusting for inflation.
Although December is the Christmas season, consumer demand fell by 1.1% from November, according to data on retail sales.
Perhaps one of the most important indicators of the decline in American consumption is the considerable drop in the trade deficit in November. This month’s greatest monthly loss in a 14-year period highlighted falling consumer demand and increased importing-associated financing costs.
The US trade deficit narrowed by 21% in November, falling to $61.5 billion. While overall imports dropped by 6.4%, imports of products decreased by 7.5%. In November, exports fell 2% as well.
While the dollar’s relative strength lowers the worldwide competitiveness of American manufactured products, the high-interest rate policy of the FED has an impact on reducing demand.
Another issue is that households whose savings seemed to grow thanks to the state’s monetary subsidies during the pandemic are being enticed back to levels in 2005.
Furthermore, consumer loaning is getting dangerously close to its limits. In the third quarter of 2022, payments for credit cards, vehicles, and student loans have peaked since 2008.
Manufacturing industry is alarming
More importantly, a possible “factory recession” in the manufacturing sector in the United States may be the direst of these developments.
A Wall Street Journal survey predicted a 0.1 percent decline in industrial output in December 2022 before the numbers were released. The official statistics revealed a shrinkage of 0.7%, failing all expectations.
Capacity utilization was anticipated at 79.6 percent. The numbers showed a decline, down 78.8 percent compared to November.
Manufacturing continued the downward slide. The manufacturing sector lost another 1.3% in December after shrinking by 1.1% in November.
The industry experienced a 1.8% drop in new orders in November.
The increase in capital expenditures (equipment, buildings, intellectual property) was a modest 0.7 percent. In the third quarter, these rates were 6.3%. Therefore, it stands to reason that investment has slowed down as well.
It is often believed that the manufacturing sector of the American economy is the most vulnerable to a recession. In Q2, a technical recession is likely to occur, but economists expect it to be ‘mild.’
Teeny-weeny recessions
The overall tendency of recent estimates for the American economy is the assumption of a modest recession.
The US economy will be cooled down by the FED’s decision to keep raising interest rates at a slower pace, increasing loaning costs and declining consumer demand.
However, even the “pessimistic” FED believed there was a light at the end of the tunnel. Almost everyone anticipates a quarter-point increase in interest rates at this week’s meeting. A ‘soft landing’ is possible for the American economy, FED Governor Christopher Waller noted in his ‘Cautious Optimism’ address.
In the Bloomberg survey, economists predicted GDP would begin to decline in the second quarter, albeit a modest drop.
On the other hand, the technical definition of a recession is a decline in economic activity that lasts for two consecutive quarters in many countries. However, as Bloomberg points out, this is not the situation in the United States. In private meetings, ‘elite’ scholars of the National Bureau of Economic Research (NBER), a “non-profit” institution, are responsible for making the “official” declaration of a recession in the United States. Their deliberations often take place for a full year. The common definition of a recession is that the consensus essentially drives Wall Street that a recession is being experienced.
Is the labor market ‘tight’?
All US officials and corporate economists agree that the labor market is ‘tight.’
Unemployment rates are at historic lows, while corporations continue hiring despite the massive layoffs at tech giants.
However, the dismissals by major corporations do not directly indicate that the economy is currently in recession. Since many businesses anticipate a slowdown in 2023, they may now be adopting preventative measures to reduce labor expenses.
As a matter of fact, the formerly ‘tight’ labor market began showing signs of relaxation in December. The ever-increasing new employment after the pandemic has started to cool down. Companies created two hundred thirty thousand new positions in December. Compared to the previous two years, this is the lowest increase.
New jobs opened in 2022 were 4.5 million, clearly lower than the 6.7 million expected in 2021.
The figures may seem optimistic, but more nuanced data is concealed beneath them. The labor force participation rate, which measures the percentage of adults in the United States who are either employed or actively seeking jobs, increased to 62.3% in December; nonetheless, this is still lower than the pre-pandemic levels.
In addition, the average weekly working hours have been falling in the last two years, and in December, it marked 34.3 hours.
Employment with temporary aid services has dropped by 110.000 in the previous five months. Coupled with the data shown above, it means that employers are abandoning temporary aid programs and cutting down on employee hours in response to falling demand from customers.
Wage growth slows down
Several experts, like American Center Vice President Lael Brainard, have pointed out that low-income workers have had less wage increases than high-income workers. It is evident that employees in non-administrative positions have witnessed a lesser salary gain.
However, we have already covered above that the basic expenses of low-wage workers are concentrated in a few key areas and that inflation in these areas is greater than in others. To all this, additional details, including: Prices increased by 14% from early 2021 to late 2022, but low-income employees saw a rise of just 11.5% in their average annual salary.
Similarly, the pace of salary increase has slowed. The average hourly pay in the United States rose 4.6% in December over the previous year. It should be emphasized that inflation in the same period was 7.1 percent.
Despite all this, it is worth noting that consumer optimism is rising in OECD countries. The industrial sector, which was projected to be impacted severely by the rise in energy costs, was spared from collapsing by the mild winter, especially in Europe. In the following article, our focus will be on Europe.
America
Musk appointed co-director of Pentagon future warfare initiative
The world’s richest man, Elon Musk, has assumed the co-directorship of a Pentagon initiative focused on the future of warfare, known as “Project Meridian”.
Musk’s new role was announced by US Secretary of Defence Pete Hegseth.
Musk, who has long expressed his conviction that wars will ultimately be fought with autonomous unmanned aerial vehicles, will advise the project as co-director alongside Palmer Luckey, founder of defence start-up Anduril, and former Speaker of the House of Representatives Newt Gingrich.
In a memorandum issued at the Pentagon, Hegseth stated that the group would “examine the battlefields of the future” and “determine which weapons and technologies warfighters must employ to achieve dominance in these environments.”
During his “State of the Force” address at Marine Corps Base Quantico, Hegseth said:
“The best predictors of future conflict do not reside exclusively within the Pentagon. Obvious biases and risks arise when we task ourselves with both framing the questions and answering them.”
Hegseth stated that this initiative would commence immediately and that, following his address, he would convene with Musk, Luckey, and Gingrich at a secure location.
Project Meridian will have 120 days to “ruthlessly map the trajectory of wars, domains, and technologies”, a process that will culminate in the public disclosure of its findings alongside a classified annex.
Hegseth outlined an expansive mandate extending “from beneath the surface of the Earth to beyond the Moon.”
Rather than formulating new military strategies or policies, the panel will seek to identify “the domains we must seize and the capabilities we must master”, focusing on the effort to “discover, develop, and field” the weapons and systems that next-generation American troops may require.
The group is expected to submit a report containing recommendations to him by the end of January.
In 2024, Musk remarked: “Future wars will be entirely about drones and hypersonic missiles.” This was merely one of several similar statements he has made in recent years.
For Musk, whose oversight role at the Department of Government Efficiency (DOGE) ended in turmoil and escalated into a dispute with President Donald Trump over Trump’s spending bill, this appointment marks his formal return to government in an official capacity.
Musk and Trump ultimately reconciled, and Musk attended a meeting on artificial intelligence safety at the White House this week alongside other technology leaders.
Meridian forms part of a broader push announced by Hegseth to restructure the military around autonomous warfare and rapidly advancing technologies.
Hegseth announced the establishment of the Autonomous Warfare Command (AUTOWARCOM), a new four-star combatant command endowed with what he termed “service-like authorities” to scale autonomous and robotic capabilities across the joint force.
The Department of War will also begin phasing in new occupational frameworks across all military branches to establish specialised career tracks for what Hegseth described as “the next generation of autonomous warfighters.”
“We should have conceived an Autonomous Warfare Command a decade ago,” Hegseth said, explaining that Meridian aims to gaze far enough ahead to enable the military to anticipate the next technological shift rather than lag behind.
America
Pentagon breach exposes personal records of three million people
A cyberattack targeting the US Department of War’s personnel database has resulted in the leak of personal information belonging to approximately 3 million people.
Speaking to ABC News, a Pentagon official stated that the system accessed by unauthorised individuals contained the records of 2,760,000 living persons and 294,000 deceased individuals.
The Military Times portal, which first broke the news, had reported the number of affected individuals as approximately 4 million based on two sources. The Pentagon official subsequently conveyed different figures to ABC News.
The leak encompasses Social Security numbers and duty information belonging to military personnel and civilian employees. According to an official notification examined by Military Times, the compromised records may also include names, dates of birth, contact information, sex, race, and military occupational specialties.
The unauthorised access to the information system of the Defense Manpower Data Center (DMDC) lasted for approximately nine months, between October 2025 and 16 July 2026.
ABC News reported that the access in question was obtained by a small number of third-party users. The vulnerability was closed after it was identified.
The DMDC is considered one of the Pentagon’s primary personnel records centres. More than 60 million records belonging to active-duty personnel, reservists, civilian staff, contractors, retirees, veterans, and military family members are stored at the centre.
The Pentagon has not detected any evidence that the leaked data has been misused. Military Times reported that affected individuals were offered identity restoration and credit history monitoring services.
A similar data breach previously occurred on the Federal Bureau of Investigation’s (FBI) recruitment website, FBIJobs.gov. According to information obtained by ABC News from internal communications and sources, the FBI is considering the possibility that data belonging to its entire staff may have been stolen.
The New York Times (NYT) examined a portion of the stolen FBI records. Home addresses, telephone numbers, official email addresses, Social Security numbers, dates of birth, hiring dates, and emergency contact details for relatives were identified within these documents.
The database also contained unit designations, duty roles, and information regarding the supervisors of personnel. Some records revealed assignments within counterintelligence and counternarcotics units, as well as departments examining threats originating from Russia, China, and Iran.
Ciaran Martin, the former head of the UK National Cyber Security Centre, noted that this type of breach could directly affect the FBI’s operational capabilities.
The hacker group known as ShinyHunters had announced that it had seized medical data and security clearance records alongside files belonging to tens of thousands of active and former FBI employees.
Experts evaluating the matter for the NYT warned that this information could be used to track agents, threaten their families, or compile dossiers by foreign intelligence services.
The ShinyHunters group initially threatened to release the data unless the bureau withdrew an advisory it had published concerning the group’s attack methods.
The group later asserted that it had never intended to leak the information and characterised its action as an advertising campaign.
In a report published in May, Reuters noted that the personal data of US military personnel had been used in surveillance and attack preparations.
According to the agency, Washington’s adversaries gained the ability to pinpoint areas where troops were concentrated by exploiting commercially available location data. US lawmakers at the time criticised the Pentagon for failing to adequately protect the personal data of military personnel.
America
Canada diversifies oil and gas exports away from US
US President Donald Trump’s trade policy and the Washington administration’s push to increase Venezuelan oil imports are prompting Canada to diversify its energy exports.
According to a report by The Wall Street Journal, recent developments are accelerating Canada’s development of new oil and natural gas projects.
Steps taken by the Ottawa administration, which aspires to become an energy superpower, are seen as potentially strengthening the country’s position in global markets.
In Canada, the world’s fourth-largest oil producer and fifth-largest natural gas producer, the energy sector accounts for approximately one-fifth of total exports.
Almost all of the country’s natural gas exports and approximately 90% of its oil exports go to the US.
The newspaper writes that the trade war with Washington and the atmosphere of confrontation entered into with Iran have heightened Canada’s desire to turn to alternative markets outside the US.
Officials plan to increase shipments of oil and liquefied natural gas (LNG) to European and Asian markets.
Accelerating infrastructure investments in line with this target, Canada is also shortening approval processes. The government is prioritising the construction of an oil pipeline extending specifically to the west coast.
According to the newspaper’s estimate, if major pipeline projects are implemented, Canada’s daily oil transport capacity could rise to 6.8 million barrels by 2034.
Routes heading to the west coast will make up approximately 30% of this capacity.
The Canadian administration is simultaneously advancing LNG export projects. According to the report, these investments could allow approximately 55% of Canadian natural gas exports to be directed to markets outside the US by the early or mid-2030s.
While the government expands tax incentives for the oil and natural gas sector, the province of Alberta also plans to overhaul its royalty system.
However, the newspaper notes that implementing the new projects requires heavy investment, and the process depends on the final decisions taken by producers as well as the completion of regulatory approval processes.
The expansion of pipeline and LNG infrastructure could gradually reduce Canada’s dependence on the US market while raising its share in the global energy market.
The Canadian Prime Minister’s demand to reduce reliance on the US market had also come to the fore in July.
According to Carney’s statement, the province of Alberta submitted a plan for a pipeline spanning more than 1,000 kilometres to the west coast of British Columbia.
Targeted for completion by September 2027, the line will reach the Pacific coast by following an existing corridor through the mountainous terrain.
This shift in energy comes at a time of strained relations with the US. Donald Trump said that if Canada obtains associate member status in the European Union, he could halt trade with Europe in certain sectors and impose high tariffs.
As reported by the Associated Press, Trump characterised such a rapprochement as a “potentially hostile act”.
European Commission President Ursula von der Leyen had proposed opening the path for Canada to become the EU’s first associate member. The terms of this associate membership status, which is not defined in EU treaties, are not yet clear and require the approval of member states to enter into force.
Canada, which does not seek full membership, aims for maximum rapprochement with the EU.
Following Trump’s return to the White House, relations between Washington and Ottawa deteriorated. The Trump administration, which repeatedly called on Canada to become the “51st state” of the US, introduced additional tariffs.
In July, the US began imposing 50% tariffs on certain Canadian-origin goods.
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