From A.I. to inflation, 11 business charts that explain 2023

From A.I. to inflation, 11 business charts that explain 2023

It has been a confusing year for the economy and markets. At the start of 2023, economists largely predicted a global recession, and Wall Street was bearish on stocks, with many analysts expecting the S&P 500 to finish the year just a touch higher than where it started. Fast-forward 12 months: No recession (yet) and the S&P 500 is tantalizingly close to a record high.

Here are 11 charts that help explain how we got here.

Central bankers around the world continued an aggressive campaign of interest rate increases in 2023, raising policy rates in an effort to tame the highest inflation in generations.

Inflation has cooled considerably in many places, though it remains above the Federal Reserve’s target (around 2 percent), and rate increases have paused. The question is how long central bankers will need to keep rates high to ensure that inflation is under control without grinding economic growth to a halt.

These losses become real only if the banks have to sell the assets. Before its implosion, SVB was forced to do just that, unloading its bonds at a steep discount to repay depositors. Those losses set off alarms, leading more customers to demand their money back — a classic bank run — and heightened worries about unrealized losses at other regional banks.

Higher interest rates also raised the cost of borrowing for consumers and businesses, reverberating across the economy, especially in commercial real estate.

A slew of macroeconomic data in the United States suggested cause for celebration: Unemployment remained low, and G.D.P. grew rapidly this year. In 2020, wage growth far outpaced inflation largely because of pandemic distortions. That trend returned this year with wage growth beating inflation for the first time since the post-coronavirus economic recovery began in the second half of 2020.

What accounts for the disconnect? Persistently high prices? Recession fears? The “vibecession”? Whatever the explanation, voters’ feelings about the economy — and President Biden’s handling of it — could be potentially decisive in the 2024 election.

“Barbenheimer” weekend followed close on the heels of a strike by tens of thousands of actors. They joined screenwriters on the picket line in July to bring Hollywood to a halt.

The strikes were part of a wave of labor activity in the United States this year, including targeted strikes by the United Automobile Workers union. Despite the recent uptick, overall union activity has fallen since the 1970s and ’80s.

Two wars have underscored the fragility of the global economic recovery and rewired the world’s trade relationships.

Case in point: the geopolitics of oil. Prices soared above $120 a barrel after Russia’s 2022 invasion of Ukraine, then steadily fell amid surging U.S. oil production and signs of a global economic slowdown. The Israel-Hamas war raised new fears that oil prices would spike and reignite inflation. Despite shipping snarls in the Red Sea and Suez Canal, those concerns have yet to materialize.

In the Russia-Ukraine war, India and China have emerged as key beneficiaries. India, profiting from its neutrality, went from buying hardly any Russian oil to buying about half of what the country exports by sea. Trade between China and Russia has also surged, surpassing $200 billion in the first 11 months of this year.

Tensions between the United States and China seem to have stabilized after President Biden’s meeting with President Xi Jinping of China on the sidelines of the Asia-Pacific Economic Cooperation summit in November.

Economic ties remain strong, and new research shows how difficult it is to unwind them. Tariffs imposed by the Trump administration and other trade restrictions have caused China’s share of exports to the United States to fall in recent years, while countries like Mexico and Vietnam have gained ground.

But those countries import intermediate goods from China, meaning American supply chains remain reliant on Chinese production. In fact, China is now the dominant supplier of industrial inputs, according to calculations in one recent paper.

Another reason the United States can’t easily “decouple” from China: semiconductors. China is a major market for these advanced computer chips, which can be used to power artificial intelligence systems. This fall, the Biden administration tightened its export controls on semiconductors, making it harder for U.S. companies to sell them to China. To comply with the restrictions, big chipmakers like Nvidia are already working on modified chips to sell to Chinese markets.

This year saw an explosion of investment in generative A.I. start-ups, including Microsoft’s $10 billion backing in OpenAI, announced in January. Microsoft’s relationship with OpenAI has since come under scrutiny, particularly its role in the reinstatement of Sam Altman as OpenAI’s C.E.O. after a boardroom coup that set off a chaotic five days at the start-up. On Dec. 27, The New York Times became the first major American media organization to sue OpenAI and Microsoft over A.I.-related copyright issues, saying in the lawsuit that the companies should be held responsible for the “unlawful copying and use of The Times’s uniquely valuable works.”

Despite that, investment in this area of tech is booming.

Microsoft and Nvidia, the chipmaker, are two of the “Magnificent Seven” tech stocks that contributed to this year’s stock market rally.

As the year wound down, the S&P 500 continued a bull market rally that surprised many on Wall Street.

How long will it last? That’s a question for the next 12 months.

Liam Garrison

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