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    U.S. Added 216,000 Jobs in December, Outpacing Forecasts

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    Hiring has throttled back from 2021 and 2022, but last year’s growth was still impressive by longer-term standards.The U.S. labor market ended 2023 with a bang, gaining more jobs than experts had expected and buoying hopes that the economy can settle into a solid, sustainable level of growth rather than fall into a recession.Employers added 216,000 jobs in December on a seasonally adjusted basis, the Labor Department reported on Friday. The unemployment rate was unchanged at 3.7 percent.Although hiring has slowed in recent months, layoffs remain near record lows. The durability of both hiring and wage gains is all the more remarkable in light of the Federal Reserve’s aggressive series of interest rate increases in the past couple of years. But a range of analysts warns that the coast is not yet clear and says the effects of those higher rates will take time to filter through business activity.“The real test for the labor market begins now, and so far it is passing the test,” said Daniel Altman, the chief economist at Instawork, a digital platform that connects employers with job seekers.Financial commentary in the past year has been dominated by dueling narratives about the economy. Most economists warned that the Fed’s driving up borrowing costs at a historically rapid pace would send the economy into a downturn. Heading into 2023, over 90 percent of chief executives surveyed by the Conference Board said they were expecting a recession. And many leading analysts thought that price increases could soften only if workers experienced significant job losses.But the resilience of the overall economy and consumer spending has so far defied that outlook: In June 2022, inflation was roughly 9 percent. Inflation has since tumbled to 3 percent while the unemployment rate has been largely unmoved.The economy gained 2.7 million jobs in 2023.Annual change in jobs More

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    Auto Sales Are Expected to Slow After a Strong 2023

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    Automakers sold more cars in 2023 than a year ago as supply chain chaos ended, but sales are now under pressure from higher interest rates.After enjoying a strong rebound in sales in 2023, the auto industry appears headed for slower growth this year as consumers struggle with elevated interest rates and high prices for new cars and light trucks.Edmunds, a market researcher, expects the industry to sell 15.7 million vehicles this year. That would amount to a modest increase from the 15.5 million sold last year, when sales jumped 12 percent.“There’s definitely pent-up demand out there, because people have been holding off purchases for a while,” said Jessica Caldwell, head of insights at Edmunds. “But given the credit situation, we don’t think the industry will see a ton of growth this year.”Since the coronavirus pandemic, automakers have struggled with shortages of critical parts that have prevented them from producing as many vehicles as consumers wanted to buy. In 2023, the shortages, especially for computer chips, finally eased, allowing production to return to more normal levels.But over the past year, the Federal Reserve has significantly raised interest rates, which has pushed up costs considerably for car buyers.For years, many people took advantage of zero-percent loans to buy vehicles, even as prices climbed. But such deals, offered by automakers to move inventory, have nearly disappeared in the wake of the Fed’s rate hikes. In the fourth quarter of 2023, new-vehicle sales with zero-percent financing accounted for just 2.3 percent of all sales, according to Edmunds.Monthly payments are at near-record highs. In the fourth quarter, the average monthly payment on new cars was $739, up from $717 in the same period a year ago.Several automakers were hoping that a rapid rise in sales of new electric vehicles would drive the industry to gains into 2024 and 2025, but those cars and trucks haven’t taken off quite as quickly as many analysts and executives had hoped.In 2023, sales of battery-powered models in the United States topped one million vehicles for the first time, and Cox Automotive, another research firm, expects sales to reach 1.5 million this year. But General Motors, Ford Motor, Volkswagen and other manufacturers had been expecting an even faster ramp-up.But consumers have balked at the high prices of many of the newest electric models. Many drivers are also reluctant to make the switch to battery power, because they are not sure they will be able to find enough places to quickly refuel. That has forced automakers to reset their plans.G.M. had once forecast it would produce 400,000 electric vehicles by the middle of 2024 but now has given up that target, and it has delayed the production of some electric models.Ford had been aiming to have enough factory capacity by the end of 2024 to make 600,000 battery-powered vehicles a year, but it recently lowered production plans for its electric F-150 Lightning and its electric sport-utility vehicle, the Mustang Mach-E.On Wednesday, G.M. said that its sales of new vehicles in the United States jumped 14 percent last year. The company sold 2.6 million cars and light trucks in 2023, up from 2.3 million in 2022, when the chip shortage limited production.G.M. sold about 76,000 electric vehicles, up from 39,000 in 2022. But most were Chevrolet Bolts, a model that the company recently stopped making. Only about 13,000 were vehicle based on newer battery technology that G.M. had been hoping would make its electric vehicles affordable to many more car buyers.Sales for G.M. in the fourth quarter were relatively weak. They climbed just 0.3 percent from the same period a year earlier and were down 7 percent compared with the third quarter of 2023. The company said the sales of several important models were limited by a strike at some of its plants by the United Automobile Workers union.Separately, Toyota Motor, the second largest seller of cars in the United States after G.M., said its 2023 sales rose 7 percent, to 2.2 million vehicles. The company’s sales in the fourth quarter were 15.4 percent higher than in the same quarter a year ago and about 5 percent higher than in the third quarter.Stellantis, the maker of Chrysler, Ram and Jeep vehicles, said that it sold 1.5 million cars and trucks in 2023, about 1 percent less than the year before. The company plans to introduce eight new electric vehicles this year, and it aims to have battery-powered models account for half of its North American sales by the end of the decade.Honda, Hyundai and Kia also on Wednesday reported strong U.S. sales for 2023 And on Tuesday, Tesla, which dominates the electric car business in the United States, said it sold 1.8 million cars worldwide last year, up 38 percent from 2022.Ford is expected to report its sales total on Thursday. More

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    Fed Minutes Showed Officials Feeling Better About Inflation

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    Central bankers wanted to signal that interest rates were likely at or near their peak while keeping their options open, December minutes showed.Federal Reserve officials wanted to use their final policy statement of 2023 to signal that interest rates might be at their peak even as they left the door open to future rate increases, minutes from their December meeting showed.The notes, released on Wednesday, explained why officials tweaked a key sentence in that statement — adding “any” to the phrase pledging that officials would work to gauge “the extent of any additional policy firming that may be appropriate.” The point was to relay the judgment that policy “was likely now at or near its peak” as inflation moderated and higher interest rates seemed to be working as planned.Federal Reserve officials left interest rates unchanged in their Dec. 13 policy decision and forecast that they would cut borrowing costs three times in 2024. Both the meeting itself — and the fresh minutes describing the Fed’s thinking — have suggested that the central bank is shifting toward the next phase in its fight against rapid inflation.“Several participants remarked that the Committee’s past policy actions were having their intended effect of helping to slow the growth of aggregate demand and cool labor market conditions,” the minutes said at another point. Given that, “they expected the Committee’s restrictive policy stance to continue to soften household and business spending, helping to promote further reductions in inflation over the next few years.”The Fed raised interest rates rapidly starting in March 2022, hoping to slow down economic growth by making it more expensive for households and businesses to borrow money. The economy has remained surprisingly resilient in the face of those moves, which pushed interest rates to their highest level in 22 years.But inflation has cooled sharply since mid-2023, with the Fed’s preferred measure of price increases climbing 2.6 percent in the year through November. While that is still faster than the central bank’s 2 percent inflation goal, it is much more moderate than the 2022 peak, which was higher than 7 percent. That has allowed the Fed to pivot away from rate increases.Officials had previously expected to make one final quarter-point move in 2023, which they ultimately skipped. Now, Wall Street is focused on when they will begin to cut interest rates, and how quickly they will bring them down. While rates are currently set to a range of 5.25 to 5.5 percent, investors are betting that they could fall to 3.75 to 4 percent by the end of 2024, based on the market pricing before the minutes were released. Many expect rate reductions to begin as soon as March.But Fed officials have suggested that they may need to keep interest rates at least high enough to weigh on growth for some time. Much of the recent progress has come as supply chain snarls have cleared up, but further slowing may require a pronounced economic cool-down.“Several participants assessed that healing in supply chains and labor supply was largely complete, and therefore that continued progress in reducing inflation may need to come mainly from further softening in product and labor demand, with restrictive monetary policy continuing to play a central role,” the minutes said.Other parts of the economy are showing signs of slowing. While growth and consumption have remained surprisingly solid, hiring has pulled back. Job openings fell in November to the lowest level since early 2021, data released Wednesday showed.Some Fed officials “remarked that their contacts reported larger applicant pools for vacancies, and some participants highlighted that the ratio of vacancies to unemployed workers had declined to a value only modestly above its level just before the pandemic,” the minutes noted.Fed officials also discussed their balance sheet of bond holdings, which they amassed during the pandemic and have been shrinking by allowing securities to expire without reinvesting them. Policymakers will need to stop shrinking their holdings at some point, and several officials “suggested that it would be appropriate for the Committee to begin to discuss the technical factors that would guide a decision to slow the pace of runoff well before such a decision was reached in order to provide appropriate advance notice to the public.” More

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    Will America’s Good News on Inflation Last?

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    One of the biggest economic surprises of 2023 was how quickly inflation faded. A dig into the details offers hints at whether it will last into 2024.Prices climbed rapidly in 2021 and 2022, straining American household budgets and chipping away at President Biden’s approval rating. But inflation cooled in late 2023, a spurt of progress that happened more quickly than economists had expected and that stoked hopes of a gentle economic landing.Now, the question is whether the good news can persist into 2024.As forecasters try to guess what will happen next, many are looking closely at where the recent slowdown has come from. The details suggest that a combination of weaker goods prices — things like apparel and used cars — and moderating costs for services including travel has helped to drive the cooldown, even as rent increases take time to fade.Taken together, the trends suggest that more disinflation could be in store, but they also hint that a few lingering risks loom. Below is a rundown of the big changes to watch.What we’re talking about when we talk about disinflation.What’s happening in America right now is what economists call “disinflation”: When you compare prices today with prices a year ago, the pace of increase has slowed notably. At their peak in the summer of 2022, consumer prices were increasing at a 9.1 percent yearly pace. As of November, it was just 3.1 percent.Still, disinflation does not mean that prices are falling outright. Price levels have generally not reversed the big run-up that happened just after the pandemic. That means things like rent, car repairs and groceries remain more expensive on paper than they were in 2019. (Wages have also been climbing, and have picked up more quickly than prices in recent months.) In short, prices are still climbing, just not as quickly.What inflation rate are officials aiming for?The Federal Reserve, which is responsible for trying to restore price stability, wants to return price increases to a slow and steady pace that is consistent with a sustainable economy over time. Like other central banks around the world, the Fed defines that as a 2 percent annual inflation rate. What caused the 2023 disinflation surprise?Inflation shocked economists in 2021 and 2022 by first shooting up sharply and then remaining elevated. But starting in mid-2023, it began to swing in the opposite direction, falling faster than widely predicted.As of the middle of last year, Fed officials expected a key measure of inflation — the Personal Consumption Expenditures measure — to end the year at 3.2 percent. As of the latest data released in November, it had instead faded to a more modest 2.6 percent. The more timely Consumer Price Index measure has also been coming down swiftly.The surprisingly quick cooldown started as travel prices began to decelerate, said Omair Sharif, founder of Inflation Insights. When it came to airfares in particular, the story was supply.Demand was still strong, but after years of limited capacity, available flights and seats had finally caught up. That combined with cheaper jet fuel to send fares lower. And while other travel-related service prices like hotel room rates jumped rapidly in 2022, they were increasing much more slowly by mid-2023.Travel inflation is returning to normalHotel price increases look much as they did before the pandemic, while airfares have recently fallen.

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    Year-over-year percentage change in Consumer Price Index categories
    Source: Bureau of Labor StatisticsBy The New York TimesThe next change that lowered inflation came from goods prices. After jumping for two years, prices for products like furniture, apparel and used cars began to climb much more slowly — or even to fall.The amount of disinflation coming from goods was surprising, said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. And, encouragingly, “it was reasonably broad-based.”Used car deflation is backUsed vehicle prices fell in 2023. New car prices have been climbing, but more slowly than in 2022.

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    Year-over-year percentage change in Consumer Price Index categories
    Source: Bureau of Labor StatisticsBy The New York TimesThe inflation relief came partly from supply improvements. For years, snarled transit routes, expensive shipping fares and a limited supply of workers had limited how many products and services companies could offer. But by late last year, shipping routes were operating normally, pilots and flight crews were in the skies, and car companies were churning out new vehicles.“The supply side is at work,” said Skanda Amarnath, executive director at the worker-focused research group Employ America.What could be the next shoe to drop?In fact, one source of long-awaited disinflation has yet to show up fully: a slowdown in rental inflation.Private-sector data tracking new rents soared early in the pandemic but then slowed sharply. Many economists think that pullback will eventually feed into official inflation data as renters renew their leases or start new ones — but the process is taking time.Housing inflation remains faster than normalRent increases and a measure that approximates the cost of owned housing are both slowing only gradually.

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    Year-over-year percentage change in Consumer Price Index categories
    Source: Bureau of Labor StatisticsBy The New York Times“We’re likely to see more moderation in rent,” said Laura Rosner-Warburton, senior economist and founding partner at MacroPolicy Perspectives. Because a bigger rent cooldown remains possible and goods price increases could keep slowing, many economists expect overall consumer price inflation to fall closer to the Fed’s goal by the end of 2024. There is even a risk that it could slip below 2 percent, some think.“It’s a scenario that deserves some discussion,” Ms. Rosner-Warburton said. “I don’t think it’s the most likely scenario, but the risks are more balanced.”What could go wrong?Of course, that does not mean Fed officials and the American economy are entirely out of the woods. Falling gas prices have been helping to pull inflation lower both overall and by feeding into other prices, like airfares. But fuel prices are notoriously fickle. If unrest in gas-producing regions causes energy costs to jump unexpectedly, stamping inflation out will become more difficult.Geopolitics also carry another inflation risk: Attacks against merchant ships in the Red Sea are messing with a key transit route for global commerce, for instance. If such problems last and worsen, they could eventually feed into higher prices for goods.And perhaps the most immediate risk is that the big inflation slowdown toward the end of 2023 could have been overstated. In recent years, end-of-year price figures have been revised up and January inflation data have come in on the warm side, partly because some companies raise prices at the beginning of the new year.“There is a bunch of choppiness coming,” Mr. Sharif said. He said he’ll closely watch a set of inflation recalculations slated for release on Feb. 9, which should give policymakers a clearer view of whether the recent slowdown has been as notable as it looks.But Mr. Sharif said the overall takeaway was that inflation looked poised to continue its moderation.That could help to pave the path for lower interest rates from the Fed, which has projected that it could lower borrowing costs several times in 2024 after raising them to the highest level in more than 22 years in a bid to cool the economy and wrestle inflation under control.“There’s not a lot of upside risk left, in my mind,” Mr. Sharif said. More

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    Holiday Spending Increased, Defying Fears of a Decline

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    While the pace of growth slowed, spending stayed strong because of robust job growth and strong wage gains.Despite lingering inflation, Americans increased their spending this holiday season, early data shows. That comes as a big relief for retailers that had spent much of the year fearing the economy would soon weaken and consumer spending would fall.Retail sales increased 3.1 percent from Nov. 1 to Dec. 24 compared with the same period a year earlier, according to data Mastercard released on Tuesday. The credit card company’s numbers are not adjusted for inflation.Spending increased across many categories, with restaurants experiencing one of the largest jumps, 7.8 percent. Apparel increased 2.4 percent, and groceries also had gains.The holiday sales figures, driven by a healthy labor market and wage gains, suggests that the economy remains strong. The Federal Reserve’s campaign to rein in high inflation by raising interest rates over the last few years has slowed the economy, but many economists believe a so-called soft landing is within reach.“What we’re seeing during this holiday season is very consistent with how we’re thinking about the economy, which is that it’s an economy that is still very much expanding,” said Michelle Meyer, Mastercard’s chief economist.Solid job growth is allowing people to spend more. And even though consumer prices have risen a lot in the last two years, wages have grown faster on the whole.“We’re now entering the period, and we’re seeing it to some extent during the holiday season, where consumers have built up real purchasing power,” Ms. Meyer said.Still spending in categories like electronics and jewelry declined this season. And the rate of growth in spending has moderated from the last couple of years. In 2022, retail sales during the holiday season increased 5.4 percent, according to the National Retail Federation. In 2021, they rose 12.7 percent, the largest percentage increase in at least 20 years. Online sales growth has also slowed in 2023, increasing 6.3 percent compared with 10.6 percent from 2021 to 2022, according to Mastercard.While the economy is strong overall, Americans are being more mindful of how they’re spending, and that discretion shaped the shopping season.Some retailers had expressed concerns in recent months that shoppers appeared glum and fearful about the economy. Walmart and Target noted that shoppers seemed to be waiting for sales before buying, a change from recent years when they spent more freely.“The caution that they’ve taken on their spend and where they’re spending has been really noticeable in the second half of the year, where a lot of customers have been affected, especially lower-income and middle-income” people, said Jessica Ramírez, a retail research analyst at Jane Hali & Associates.In a return to some of the trends that prevailed before the pandemic, many retailers and brands offered promotions. Discounts were in the 30 to 50 percent range, Ms. Ramírez said. But the discounts were more targeted this year than last because fewer companies were saddled with gluts of inventory.Retail sales increased this holiday season compared with the same period a year earlier, though at a slower pace than last year.Maansi Srivastava/The New York TimesThe categories that have faced falling sales this year — like electronics, home furnishings and toys — saw some of the biggest discounts leading up to Christmas. Those goods had enjoyed booming sales during the pandemic.Alexan Weir, a 30-year-old mother in Orlando, Fla., said she was pleased to find deals on toys when she bought Christmas gifts for her daughters this month. Among the items she bought at Target were the Asha doll, based on the main character from the Disney movie “Wish”; an Elsa doll from “Frozen”; and a Minnie Mouse kitchen set. With discounts, the items together cost about half as much as their total list prices of $200.“As a parent you’re just trying to make your kids happy. You’re not trying to break the bank,” Ms. Weir said. “I spent a little bit more this year, but at least with the few sales that I received, I can say I was not heartbroken about how much I was spending.”Barbie — whose banner year was fueled by the blockbuster movie — sold particularly well in a year when there wasn’t a breakout toy. The doll and her many accouterments have been selling well at Mary Arnold Toys, a family-owned store on Manhattan’s Upper East Side. And overall sales at the shop have been steady, said Ezra Ishayik, who has run the store for 40 years.“It looks like it is about even with last year — not better, not worse,” Mr. Ishayik said. “The economy looks good to me. It’s decent, it’s OK, people are buying. We are on the high end of the industry so we don’t see any downtrend at all.”But the past few months have been more challenging for Modi Toys.Modi, an online retailer, sells plush toys and books based on Hindu culture and usually sees two sales bumps in the fourth quarter — one in the lead up to Diwali and another around Christmas.Normally the company brings in more than $100,000 in sales in the month before Diwali, which fell on Nov. 12, but this year sales dropped into the five-figure range. That was partly because the retailer launched a product too early and then had to offer hefty discounts to spur sales — something retailers try to avoid with new merchandise.“That’s when we knew that we really were going to have a challenging holiday season,” said Avani Modi Sarkar, a founder of the company.As she wraps up the year and looks toward 2024, Ms. Sarkar is testing new digital marketing strategies, including sending personalized email newsletters to customers and closely monitoring discounts.“We’re just trying to close the gap for us and not end the year with as big of a gap as we would have,” she said. “I know what we’re capable of, and I’m trying to not only get to that level again, but surpass it.”One clear sign that shoppers are being more careful about how much they spend comes from discount retailers. In November, Burlington, an off-price retailer, and the parent company of Marshalls and T.J. Maxx said they saw comparable store sales increase 6 percent.The online retailer ThriftBooks said its sales were also up this holiday season, by more than 20 percent in November and more than 24 percent this month compared with a year ago, according to Ken Goldstein, the company’s chief executive.“This was unprecedented,” Mr. Goldstein said. “This is beyond belief in terms of the volume that we’re doing. Because we’re a value product, I think a lot of people are putting their dollars to work.” More

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    Red Sea Shipping Halt Is Latest Risk to Global Economy

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    Next year could see increasing volatility as persistent military conflicts and economic uncertainty influence voting in national elections across the globe.The attacks on crucial shipping traffic in the Red Sea straits by a determined band of militants in Yemen — a spillover from the Israeli-Hamas war in Gaza — is injecting a new dose of instability into a world economy already struggling with mounting geopolitical tensions.The risk of escalating conflict in the Middle East is the latest in a string of unpredictable crises, including the Covid-19 pandemic and the war in Ukraine, that have landed like swipes of a bear claw on the global economy, smacking it off course and leaving scars.As if that weren’t enough, more volatility lies ahead in the form of a wave of national elections whose repercussions could be deep and long. More than two billion people in roughly 50 countries, including India, Indonesia, Mexico, South Africa, the United States and the 27 nations of the European Parliament, will head to the polls. Altogether, participants in 2024’s elections olympiad account for 60 percent of the world’s economic output.In robust democracies, elections are taking place as mistrust in government is rising, electorates are bitterly divided and there is a profound and abiding anxiety over economic prospects.A ship crossing the Suez Canal toward the Red Sea. Attacks on the Red Sea have pushed up freight and insurance rates.Mohamed Hossam/EPA, via ShutterstockA billboard promoting presidential elections in Russia, which will take place in March.Dmitri Lovetsky/Associated PressEven in countries where elections are neither free nor fair, leaders are sensitive to the economy’s health. President Vladimir V. Putin’s decision this fall to require exporters to convert foreign currency into rubles was probably done with an eye on propping up the ruble and tamping down prices in the run-up to Russia’s presidential elections in March.The winners will determine crucial policy decisions affecting factory subsidies, tax breaks, technology transfers, the development of artificial intelligence, regulatory controls, trade barriers, investments, debt relief and the energy transition.A rash of electoral victories that carry angry populists into power could push governments toward tighter control of trade, foreign investment and immigration. Such policies, said Diane Coyle, a professor of public policy at the University of Cambridge, could tip the global economy into “a very different world than the one that we have been used to.”In many places, skepticism about globalization has been fueled by stagnant incomes, declining standards of living and growing inequality. Nonetheless, Ms. Coyle said, “a world of shrinking trade is a world of shrinking income.”And that raises the possibility of a “vicious cycle,” because the election of right-wing nationalists is likely to further weaken global growth and bruise economic fortunes, she warned.A campaign rally for former President Donald J. Trump in New Hampshire in December.Doug Mills/The New York TimesA line of migrants on their way to a Border Patrol processing center at the U.S.-Mexico border. Immigration will be a hot topic in upcoming elections.Rebecca Noble for The New York TimesMany economists have compared recent economic events to those of the 1970s, but the decade that Ms. Coyle said came to mind was the 1930s, when political upheavals and financial imbalances “played out into populism and declining trade and then extreme politics.”The biggest election next year is in India. Currently the world’s fastest-growing economy, it is jockeying to compete with China as the world’s manufacturing hub. Taiwan’s presidential election in January has the potential to ratchet up tensions between the United States and China. In Mexico, the vote will affect the government’s approach to energy and foreign investment. And a new president in Indonesia could shift policies on critical minerals like nickel.The U.S. presidential election, of course, will be the most significant by far for the world economy. The approaching contest is already affecting decision-making. Last week, Washington and Brussels agreed to suspend tariffs on European steel and aluminum and on American whiskey and motorcycles until after the election.The deal enables President Biden to appear to take a tough stance on trade deals as he battles for votes. Former President Donald J. Trump, the likely Republican candidate, has championed protectionist trade policies and proposed slapping a 10 percent tariff on all goods coming into the United States — a combative move that would inevitably lead other countries to retaliate.Mr. Trump, who has echoed authoritarian leaders, has also indicated that he would step back from America’s partnership with Europe, withdraw support for Ukraine and pursue a more confrontational stance toward China.Workers on a car assembly line in Hefei, China. Beijing has provided enormous incentives for electric vehicles.Qilai Shen for The New York TimesA shipyard in India, which is jockeying to compete with China as the world’s largest manufacturing hub.Atul Loke for The New York Times“The outcome of the elections could lead to far-reaching shifts in domestic and foreign policy issues, including on climate change, regulations and global alliances,” the consulting firm EY-Parthenon concluded in a recent report.Next year’s global economic outlook so far is mixed. Growth in most corners of the world remains slow, and dozens of developing countries are in danger of defaulting on their sovereign debts. On the positive side of the ledger, the rapid fall in inflation is nudging central bankers to reduce interest rates or at least halt their rise. Reduced borrowing costs are generally a spur to investment and home buying.As the world continues to fracture into uneasy alliances and rival blocs, security concerns are likely to loom even larger in economic decisions than they have so far.China, India and Turkey stepped up to buy Russian oil, gas and coal after Europe sharply reduced its purchases in the wake of Moscow’s invasion of Ukraine. At the same time, tensions between China and the United States spurred Washington to respond to years of strong-handed industrial support from Beijing by providing enormous incentives for electric vehicles, semiconductors and other items deemed essential for national security.A protest in Yemen on Friday against the operation to safeguard trade and protect ships in the Red Sea.Osamah Yahya/EPA, via ShutterstockThe drone and missile attacks in the Red Sea by Iranian-backed Houthi militia are a further sign of increasing fragmentation.In the last couple of months, there has been a rise in smaller players like Yemen, Hamas, Azerbaijan and Venezuela that are seeking to change the status quo, said Courtney Rickert McCaffrey, a geopolitical analyst at EY-Parthenon and an author of the recent report.“Even if these conflicts are smaller, they can still affect global supply chains in unexpected ways,” she said. “Geopolitical power is becoming more dispersed,” and that increases volatility.The Houthi assaults on vessels from around the world in the Bab-el-Mandeb strait — the aptly named Gate of Grief — on the southern end of the Red Sea have pushed up freight and insurance rates and oil prices while diverting marine traffic to a much longer and costlier route around Africa.Last week, the United States said it would expand a military coalition to ensure the safety of ships passing through this commercial pathway, through which 12 percent of global trade passes. It is the biggest rerouting of worldwide trade since Russia’s invasion of Ukraine in February 2022.Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the impact of the attacks had so far been limited. “From an economic perspective, we’re not seeing huge increase in oil and gas prices,” Mr. Vistesen said, although he acknowledged that the Red Sea assaults were the “most obvious near-term flashpoint.”Uncertainty does have a dampening effect on the economy, though. Businesses tend to adopt a wait-and-see attitude when it comes to investment, expansions and hiring.“Continuing volatility in geopolitical and geoeconomic relations between major economies is the biggest concern for chief risk officers in both the public and private sectors,” a midyear survey by the World Economic Forum found.With persistent military conflicts, increasing bouts of extreme weather and a slew of major elections ahead, it’s likely that 2024 will bring more of the same. More

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    Under Argentina’s New President, Fuel Is Up 60%, and Diaper Prices Have Doubled

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    Javier Milei warned that things would get worse before they got better. Now Argentines are living it.Over the past two weeks, the owner of a hip wine bar in Buenos Aires saw the price of beef soar 73 percent, while the zucchini he puts in salads rose 140 percent. An Uber driver paid 60 percent more to fill her tank. And a father said he spent twice as much on diapers for his toddler than he did last month.In Argentina, a country synonymous with galloping inflation, people are used to paying more for just about everything. But under the country’s new president, life is quickly becoming even more painful.When Javier Milei was elected president on Nov. 19, the country was already suffering under the world’s third-highest rate of inflation, with prices up 160 percent from a year before.But since Mr. Milei took office on Dec. 10 and quickly devalued the Argentine currency, prices have soared at such a dizzying pace that many in this South American country of 46 million are running new calculations on how their businesses or households can survive the far deeper economic crunch the country is already enduring.“Since Milei won, we’ve been worried all the time,” said Fernando González Galli, 36, a high school philosophy teacher in Buenos Aires.Mr. Galli has been trying to cut back without making life worse for his two daughters, who are 6 years and 18 months old, including switching to a cheaper brand of diapers and racing to spend his Argentine pesos before their value disintegrates even further. “As soon as I get my paycheck, I go buy everything I can,” he said.Since Javier Milei took office on Dec. 10 and quickly devalued the Argentine currency, prices have risen at a dizzying pace.Emiliano Lasalvia/Agence France-Presse — Getty ImagesNahuel Carbajo, 37, an owner of Naranjo Bar, a trendy Buenos Aires wine bar, said that like most Argentines, he had become accustomed to regular price increases, but this past week went far beyond what even he was used to.Since Mr. Milei won, the price for the premium steak that Mr. Carbajo serves soared 73 percent, to 14,580 pesos, or roughly $18, per kilogram, about 2.2 pounds; a five-kilogram box of zucchinis rose to 15,600 pesos from 6,500; and avocados cost 51 percent more than the beginning of this month.“There’s no way for salaries or people’s incomes to adapt at that speed,” Mr. Carbajo said.Mr. Milei’s spokesman, Manuel Adorni, said accelerating inflation was the inevitable consequence of finally fixing Argentina’s distorted economy.“We’ve been left with a multitude of problems and unresolved issues that we have to start addressing,” he said. “Inevitably, we will go through months of high inflation.”Mr. Milei has warned Argentines that his plans to shrink the government and remake the economy would hurt at first. “I prefer to tell you the uncomfortable truth rather than a comfortable lie,” he said in his inaugural address, adding this past week that he wanted to end the country’s “model of decline.”Argentina’s economy has been mired in crisis for years, with chronic inflation, rising poverty and a currency that has plunged in value. The economic turmoil paved the way to the presidency for Mr. Milei, a political outsider who had spent years as an economist and television pundit railing against what he called corrupt politicians who had destroyed the economy, often for personal gain.During the campaign, he vowed to take a chain saw to public spending and regulations, even wielding an actual chain saw at rallies.After Mr. Milei’s victory, price increases began accelerating in expectation of his new policies.Buying fruit and vegetables in Buenos Aires. Argentines suffer under the world’s third highest rate of inflation.Tomas Cuesta/ReutersThe previous leftist government had used complicated currency controls, consumer subsidies and other measures to inflate the peso’s official value and keep several key prices artificially low, including gas, transportation and electricity.Mr. Milei vowed to undo all that, and he has wasted little time.Two days after taking office, Mr. Milei began cutting government spending, including consumer subsidies. He also devalued the peso by 54 percent, putting the government’s exchange rate much closer to the market’s valuation of the peso.Economists said such measures were necessary to fix Argentina’s long-term financial problems. But they also brought short-term pain in the form of even faster inflation. Some analysts questioned the lack of adequate safety nets for the poorest Argentines.In November, prices rose 13 percent from October, according to government data. Analysts predict prices will increase another 25 percent to 30 percent this month. And from now until February, some economists are forecasting an 80 percent jump, according to Santiago Manoukian, the chief economist at Ecolatina, an economics consulting firm.The forecasts are partly caused by soaring gas prices, which increased 60 percent from Dec. 7 to Dec. 13, and have a trickle-down effect on the economy.The currency devaluation made imported products like coffee, electronic devices and gas immediately more expensive because they are priced in U.S. dollars. A monthly Netflix subscription in Argentina jumped 60 percent to 6,676 pesos, or $8.30, the day after the devaluation, for example. It also prompted some domestic producers, including farmers and cattle ranchers, to increase prices to align them with their own rising costs.With the chronic high inflation, labor unions often negotiate large raises to try to keep up, yet those wage increases are quickly eaten up by sharp price hikes. Informal workers, a list that includes nannies and street vendors, and who make up nearly half of the economy, also do not get such raises.Outside a clothing store this month in Buenos Aires. In November, prices rose 13 percent from October, and analysts predict that prices will increase another 25 percent to 30 percent this month.Luis Robayo/Agence France-Presse — Getty ImagesOn Wednesday, Mr. Milei launched his next big steps to remake the government and economy with an emergency decree that significantly reduces the state’s role in the economy and eliminates a raft of regulations.The measure prohibits the state from regulating the rental real estate market and setting limits on fees that banks and health insurers can charge customers; changes labor laws to make it easier to fire workers while also placing limits on strikes; and turns state companies into corporations so they can be privatized.Many legal analysts immediately questioned the decree’s constitutionality, saying that Mr. Milei was trying to subvert Congress.After the speech, people across Buenos Aires, like Jesusa Orfelia Peralta, 73, a retiree, took to the streets banging on pots to show their displeasure.She worried that price increases would make proper health care too expensive for her and her husband. Despite severe spinal problems, she said she did not hesitate to head out, using a walker, and vent her anger in public. “Where else would I be?” she said.A protest on Wednesday in Buenos Aires against Mr. Milei’s austerity measures.Luis Robayo/Agence France-Presse — Getty ImagesMr. Milei has sought to discourage protests by threatening to cancel welfare plans and fine anyone involved in demonstrations that block roads. Human rights groups have widely criticized such policies as restricting the right to peacefully protest.For now, most Argentines are trying to figure out how to make ends meet in what often feels like both a complicated course in economics and a frenzied sprint to buy before prices rise again.“I always say that we are at university, and every day we sit for a difficult exam, every five minutes,” Roberto Nicolás Ormeño, an owner of El Gauchito, a small empanada shop in downtown Buenos Aires.Mr. Ormeño said he had been scouring the market for his ingredients and changing suppliers almost every week, either because they increase prices too much or provide poorer quality products.He is trying to avoid passing along too much of his price increases to customers, though he is unsure how long he can sustain that. “I see my frequent customers buying one dozen instead of two” dozen empanadas, he said.Marisol del Valle Cardozo, who has a 3-year-old daughter, has been cutting back in a bid to make ends meet, turning to cheaper brands and going out less. “We don’t turn the air-conditioning on as much,” she said. “We decreased our plans on weekends from four times a month to just once.”Ms. Cardozo, who works for a police department outside Buenos Aires, said that she got a raise this year, but that it is already not enough. She also drives an Uber, but said that fare increases had not kept up with the soaring gas prices.Despite the challenges, Ms. Cardozo said she remained a Milei supporter and was hoping his policies work.“We were living under a fantasy,” she said, referring to gas prices before the recent hike. “If these adjustments are necessary to thrive in the end, they’re worth it.”Protesters in front of the National Congress on Thursday in Buenos Aires.Luis Robayo/Agence France-Presse — Getty ImagesJack Nicas More

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    Price Increases Cooled in November as Inflation Falls Toward Fed Target

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    A key inflation measure has been slowing and overall prices actually declined slightly from October, good news for officials and consumers.A closely watched measure of inflation cooled notably in November, good news for the Federal Reserve as officials move toward the next phase in their fight against rapid price increases and a positive for the White House as voters see relief from rising costs.The Personal Consumption Expenditures inflation measure, which the Fed cites when it says it aims for 2 percent inflation on average over time, climbed 2.6 percent in the year through November. That was down from 2.9 percent the previous month, and was less than what economists had forecast. Compared with the previous month, prices overall even fell slightly for the first time in years.That decline — a 0.1 percent drop, and the first negative reading since April 2020 — came as gas prices dropped. After volatile food and fuel prices were stripped out for a clearer look at underlying price pressures, inflation climbed modestly on a monthly basis and 3.2 percent over the year. That was down from 3.4 percent previously.While that is still faster than the Fed’s goal, the report provided the latest evidence that price increases are swiftly slowing back toward the central bank’s target. After more than two years of rapid inflation that has burdened American shoppers and bedeviled policymakers, several months of solid progress have helped to convince policymakers that they may be turning a corner.Increasingly, officials and economists think that they may be within sight of a soft economic landing — one in which inflation moderates back to normal without a painful recession. Fed policymakers held interest rates steady at their meeting this month, signaled that they might well be done raising interest rates and suggested that they could even cut borrowing costs three times next year.“Inflation is slowing a lot faster than the Fed had anticipated — that could allow them to potentially cut soon, and more aggressively,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities. “They’re really trying their best to deliver a soft landing here.”The inflation progress is welcome news for the Biden administration, which has struggled to capitalize on strong economic growth and low unemployment at a time when high prices are eroding household confidence.President Biden released a statement celebrating the report, and Lael Brainard, director of the National Economic Council, called the slowdown in inflation “a significant milestone” in a call with reporters.“Inflation has come down faster than even the more optimistic forecasts,” she said, noting that wage gains are outstripping price increases. While she didn’t comment on monetary policy directly, citing the central bank’s independence from the White House, she did note that households are already facing lower mortgage rates as investors come to expect a more lenient Fed.Based on market pricing, the Fed is expected to begin lowering interest rates as soon as March, though officials have argued that it is too early to talk about when rate cuts will commence.“Inflation has eased from its highs, and this has come without a significant increase in unemployment — that’s very good news,” Jerome H. Powell, the Fed chair, said at that meeting. Still, he emphasized that “the path forward is uncertain.”Central bankers are likely to watch closely for signs that inflation has continued to cool as they contemplate when to start cutting rates. Some officials have suggested that keeping borrowing costs steady when price increases are slowing would effectively squeeze the economy more. (Interest rates are not price-adjusted, so they get higher after stripping inflation out as inflation falls.)Still, Fed officials have been hesitant to declare victory after repeated head fakes in which price increases proved more stubborn than expected, and at a time when geopolitical issues could complicate supply chains or push up gas prices.“The more benign inflation data is certainly something to celebrate, but there is some turbulence ahead,” Omair Sharif, founder of Inflation Insights, wrote in a note reacting to Friday’s data. “Fed officials will want to get through before turning the focus squarely to rate cuts.”Policymakers are also likely to keep a close eye on consumer spending as they try to figure out how much momentum is left in the economy.The report released Friday showed that consumers are still spending at a moderate clip. A measure of personal consumption climbed 0.2 percent from October, and 0.3 percent after adjusting for inflation. Both readings were quicker than the previous month. That suggested that growth is still positive, though is no longer quite as hot as it was earlier this year.Officials still expect the economy to slow more notably in 2024, a demand cool-down that they think would pave the way to sustainably slower price increases.After a year in which inflation cooled rapidly in spite of surprisingly strong growth, economists are expressing humility. But policymakers remain wary of a situation in which growth remains too strong.“If you have growth that’s robust, what that will mean is probably we’ll keep the labor market very strong; it probably will place some upward pressure on inflation,” Mr. Powell said at his news conference. “That could mean that it takes longer to get to 2 percent inflation.”That, he said, “could mean we need to keep rates higher for longer.” More