Marketplace - The blue screen of death

Episode Date: July 19, 2024

Nearly every economic sector relies on secure technology networks: retailers, airlines, hospitals and more. After a faulty software update by cybersecurity giant CrowdStrike, businesses across the globe came screeching to a halt, dragging customers with them. In this episode, the tech firm behind today’s maddening “blue screen of death.” Plus: why the Federal Reserve plans communication blackouts, a former delivery driver remembers using chickens to mark her routes, and industry upheaval threatens an Alaskan fishing community.

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to donate your car today. Did you see the blue screen of death this morning? That plus a look back at the week in the economy and the value of a little quiet time. From American Public Media, this is Marketplace. In Washington, D.C., I'm Kimberly Adams in for Kai Rizdal. It's Friday, July 19th. Good to have you along. I know this was a big week for political news, but even if it didn't always make the headlines, it was a pretty big week in the economy as well. So to unpack it all, we've got Courtney Brown from Axios and Heather

Long of the Washington Post. Welcome you two. Hi, Kimberly. Hi. Heather, I want to start with you. We got continuing claims for unemployment insurance this week that were at their highest level in more than two years. What does that mean for the labor market? Kimberly, I think it's one more yellow flag about the labor market that's showing it's not panic time, you know, recession isn't on the doorstep, but we are

definitely starting to see a change. Companies are not hiring as much. We've seen the unemployment rate creeping up for over a year now. We've seen temporary help decrease for over two years now. We've seen a jump in the long-term unemployment. People who just, even once they're laid off, can't get back in very easily. And now we see the jobless claims really starting to tick up here. And okay, you could say, oh, it was just a fluke around the July 4th,

but even if you look at the four-week average, you're still seeing that highest in a year or so. And you put all that together and I think the Fed is finally starting to acknowledge, Fed Chair Powell said this week, that it's no longer overheated. I would go a step further and say we're starting to get into stall mode, but we'll see what he says at the end of the month. Well Courtney, we got another indicator this week, the retail sales that came in better than expected in June. Now that that dust has settled a bit, how do you think that fits into the narrative?

It's a little bit confusing right now. I like what Heather said about a yellow flag. It seems like we're getting a little bit of contradictory data. Retail sales came in pretty strong if you strip out gasoline prices or gasoline sales and auto sales. But you look at the other data and it really does point to an economy that looks to be cooling down. And it was really the first month in the second quarter, June was, that we saw retail spending pick up. It had been coming in pretty soft.

So I think the question still is, which data point is right? You know, is the retail sales number an indication that maybe things are still okay? Or was that kind of an anomaly? And I don't think we know the answer yet. So that's kind of unsatisfying. But we did hear from a lot of Fed officials this week, staying with you Courtney, like, did you get any hints from them? officials this week staying with you, Courtney, like, did you get any hints from them? You know, so Heather mentioned we heard from Chair Powell at the beginning of the week. We also heard from Fed Governor Christopher Waller, who has, he's kind of become this influential person on the Fed Board that you ought to be listening to. And one thing that he said that stuck out to me is that the risk of higher unemployment, he said, is greater now than it's been in a long time.

It seems like he is thinking that a rate cut in September might be appropriate. Of course, he didn't come out and say that. You're of course reading between the lines of the Fed speak. But it seems like he is much less worried about inflation and more worried about the other side of the Fed's mandate, which is full employment. Well, I actually want to come back to inflation a bit, Heather, but from a global perspective, because this week, the IMF released its world economic outlook and basically projected the U.S. economy is going to continue to grow pretty steadily

in the next year or so, but also that the fight against global inflation is not going so well. How does what's going on with global inflation relate to what's happening here on that front? Yeah, it's a really good question. And you're right, the IMF pointed to three key areas that were really continuing to drive the global inflation story. Number one is the same as in the U.S., that service inflation is still really sticky. We've got some wage pressure still. I think in the U.S. and abroad, we hope that that continues to dissipate a little bit. There's a lot of reason to be optimistic. The second one's kind of interesting.

The high value of the strong US dollar certainly makes things a lot more hard and uncomfortable for other countries. But for us here at home, a strong dollar means all these imports are really cheap right now or vacations if you're lucky enough to go abroad. So that is not such a concern in the U.S. The third thing that they really point out in the IMF report is concerns about tariffs and whether these trade wars are really going to heat up again after the U.S. election. Obviously, that's more of a warning sign going forward, but it's something that we all have to keep in mind.

So overall, I would say the IMF is more in warning mode about what could worsen the situation. But I think from a U.S. context, we can still be optimistic that we're going to see inflation cool a bit more in the coming months. Courtney, I want to ask you about a piece that you wrote actually last week on something called quiet tightening, which was a new term for me. What does that mean and why does it matter? All right. So the Fed hasn't raised interest rates in a year. But did you know that real interest rates have been moving up, even though the Fed hasn't done anything, monetary policy has gotten a wee bit tighter and a wee bit tighter. And that's because inflation is going down.

And when inflation falls, while the Fed doesn't move rates at all, the real cost of borrowing goes up. So effectively that means monetary tightening. And this is something that Chicago Fed President Austin Goolsbee seemed a little bit concerned about when he spoke to reporters last week. You know, he said, if we're going to be tightening, like it shouldn't be an accident because of a function of inflation falling. It should be on purpose. And we should only be tightening if the economy is overeating.

And to him, you know, looking at the data, he's like the economy is not overheating anymore. And he seemed to be making a case for a rate cut sometime in the future just because you have to adjust the environment of interest rates as inflation continues to fall as he expects it to. So it's a little bit of quiet or stealth tightening that's been happening in the underlying economy that you might not have known about. Real quick before I let you to go, next week we've got PCE, GDP, consumer sentiment. What is the one piece of data you're really going to be watching next week? Heather? It's obviously a hot week for the consumer. There's also a bunch of earnings reports coming out like Coca-Cola and General Motors that will also give us more insights on the consumer.

So that's number one. But I have to say, for me, number two, in that GDP report, I always look after the consumer numbers at business investment. And that's going to tell you a lot. Is that still strong about what businesses are really thinking? What about you, Courtney? This is like asking me to pick a favorite child or in my case, dog. Okay, so I think I'm going to go with housing data. We get new and existing home sales next week and housing affordability

has been a big issue when Powell went on the Hill. Lawmakers were really upset about housing. So I think I'm going to be watching that data. All right. That's all the time we have. Courtney Brown at Axios and Heather Long at The Washington Post. Thanks so much. Have a great week. Thanks, Kimberly. Wall Street today, there were some technical issues. We'll have the details when we do the numbers. It has been a highly frustrating day for people across the world after that massive tech glitch spawned chaos at businesses and organizations. Flights were grounded, medical procedures delayed, TV broadcasts stopped,

government services disrupted. Turns out the source was a glitch in a software update from cybersecurity company CrowdStrike, which disabled machines running Microsoft Windows, causing what's known as the blue screen of death. IT workers everywhere have been scrambling to make their fixes, while the Mac and Linux crowds probably feeling a bit smug. Now CrowdStrike has apologized and is making it clear that this was not a cyberattack or malicious hacking, but we wanted to learn more about CrowdStrike and why a wayward update could bring so many businesses to a screeching halt. Here's Marketplace's Elizabeth Troval with that one.

Football fans may remember CrowdStrike from their ad during the last Super Bowl, featuring a futuristic Western town attacked by some cyborg outlaws. Today's adversaries move fast. CrowdStrike moves fast. For the people anxiously milling around airports or hospitals today, the Austin-based cybersecurity company founded in 2011 is hardly a hero. Kevin Cleary is with the University at Buffalo School of Management. I think the depth of headlines that are out right now in terms of disruptions across the

globe speak for how big of a player they are. A big player used typically at an enterprise level, which is why an everyday plebe like you or me may not have been familiar with them before. As far as what CrowdStrike actually does? It kind of does the same thing that classical antivirus would do. It's looking at different files that are downloaded to your computer. It's looking at different system states. It's looking at different files that are downloaded to your computer.

It's looking at different system states. It's looking at logs. It's looking at different kinds of network traffic. Looking for a malicious needle in a haystack. And Avi Rubin with Johns Hopkins says to do that, the security software needs to be deeply embedded in computers' operating systems. And ironically, that means that if something goes wrong, they're vulnerable to having even more serious problems than other types of software. Problems that take time to resolve, in this case, computer by computer. Unfortunately, the fix is a little bit difficult because it requires booting up the system

in something called safe mode. The disruption shows how internet companies have become critical infrastructure, though they're not regulated like water or sewage, says Bruce Schneier with the Harvard Kennedy School. All of these companies, all of them, not just the one that failed today, but the hundreds of others, are incented by the market

to be as lean and efficient as possible. The problem is, he says, companies like CrowdStrike have become single points of failure. I'm Elizabeth Trowbal for Marketplace. ["Skype," by J.S. Bach, playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, and bass guitar music playing in background music with bass, drums, and bass guitar music playing in background music with bass, and bass guitar music playing in background music with bass, and bass guitar music playing in background music with bass, and bass guitar music playing in background music with bass, and bass guitar music playing in background That widespread computer outage Elizabeth was just talking about is, if anything, a good reminder of just how dependent we are on computer systems. That's the setup for the next installment of our series, My Analog Life, about how technology has changed our jobs. My name is Megan Erby. I live in Asheville, North Carolina, and I am an

economics teacher. In 2003, I was a floral delivery driver in rural West Virginia. There was no easy access to internet where I was. So they would say, go down this holler, turn left at this barn. And then maybe you'll see it four houses down. But there were a lot of different identifiers they gave us to try to find wherever we were trying to deliver flowers. And a lot of these things were really time specific. So people would be home at noon or maybe at four o'clock.

And so you'd have to really listen very well to directions and try to get there on time. I would walk into the building and immediately start mapping my route. Okay, I have to go to this town, but first I need to go to this funeral home and, I have to go to this town, but first I need to go to this funeral home, and then I need to go to this wedding venue. And the whole time I had an atlas open.

Sometimes I would get transfer paper and get highlighters, and it was a whole big deal. It was maybe an hour's worth of planning. One specific disaster I remember was when our boss used chickens as a landmark. Chickens tend to move around. And if you turn the wrong way at the chickens, then it's all over. And so I got lost down a holler that we couldn't really find a way out of and we couldn't find the delivery and it was a complete disaster. The customer was totally angry,

but it ended up working out. I mean, back in 2003, people just kind of expected calamity in that kind of way. This old Dodge caravan that I drove didn't have air conditioning and flowers are in fact perishable. So that adds to more of the time constraint. And so as a 16 year old driving with a brand new license, I was sweaty most of the time, both from the heat and the stress. But it made me an extremely mindful driver. I loved just listening to the radio.

Maroon 5 was really big. I'm really into like 90s country too. That period, if I ever hear a song on the radio, that period comes right back to me. Megan Urby there in Asheville, North Carolina. So that period comes right back to me. Coming up... They called us the Peter Pan Brats. Although they were a little closer than Neverland, but first let's do the numbers. The Dow Jones Industrial Average fell 377 points, 9 tenths of a percent, to finish at 40,287. The Nasdaq subtracted 144 points, 8 tenths of a percent, to close at 17,726. And the S&P 500 lost 39 points,% to end at $5505. For the week, the Dow rose 0.7% and the Nasdaq slid 0.3% and 0.7% and the S&P dropped 2%.

More on that software meltdown today. The company that caused the problem, CrowdStrike Holdings, tumbled 0.11% and 0.1%. Bonds fell, the yield on the 10-year T-note rose to 4.24 percent, and you're listening to Marketplace. This is Marketplace. I'm Kimberly Adams. There are other entities actually planning to go dark in the coming days. Tomorrow, the Federal Reserve will enter one of its so-called blackout or quiet periods through the 1st of August. These periods are generally around 10 days before a Federal Open Market Committee meeting

and one day after, when policymakers and staff with the Fed can't talk about macroeconomic issues or monetary policy with members of the public. Marketplace's Stephanie Hughes has more. You know when you're listening to a symphony? Okay, so maybe you don't listen to symphonies that often, but you know this one. And then there's a part where the music gets really quiet and it kind of gets yet amped up for what comes next. Peter Conte Brown, financial regulation professor at Wharton says, the Fed's blackout period is kind of like that quiet part of the music. And then all of a sudden something really big happens. Well, you've got the attention

when the really big event occurs. The really big event he's talking about is the Fed's public statement that's released at the end of each FOMC meeting. It includes whether or not the Fed's changing the federal funds rate and why. Those statements are pretty clear, and Conte Brown says any public comments from Fed folks in the days immediately beforehand could muddy that message. So when the Fed speaks with a mumble and speaks vaguely, then its ability to accomplish its goals is undermined.

This is a striking difference from how central bankers used to communicate. Conte Brown says that historically until about the 90s, they didn't say much about what they were doing, and that was on purpose. The saying went that central bankers should never explain, never defend. And that was not because they were so hoity-toity or above the fray,

but because it was better for the economy if central bankers could preserve their freedom of movement to do whatever they felt was right in the moment. So if the Federal Reserve zigged instead of zagged, no one would be taken off guard because it never said it was gonna zag. But Conte Brown says the Fed has since changed how it communicates. They started engaging in more radical transparency and started saying we're going to speak much more clearly and use that clarity as our tool. Conte Brown says blackout periods also act as an anti-corruption measure to keep people from profiting off of any information leaks.

With minimal effort, you can make money if you know where the price is going to be. And if you had that inside dope, then you wouldn't have to guess, you would know. Also in the week leading up to the FOMC meeting, the policymakers at the Fed kind of need their colleagues to keep quiet publicly because they're talking a lot privately. There's a lot of very intense policymaking going on. Don Cohen has been there. He was a member of the FOMC from 2002 till 2010. He says before each meeting, there's a lot of consensus building going on.

Policymakers are figuring out not just what they're going to say, but how they'll say it. So in that very intense period, you want to really be sure that you don't have a leak or a hint, even an inadvertent one, that would spark market speculation and that would interfere with this process. Cohen says having a blackout period helped him. Because I didn't have to worry that someone was going to start hinting to the press that the committee might do X or Y, which would then provoke some market reaction, which then

I would have to take account of. Cohen says there was already a lot of information to digest, and the blackout period helped him focus on the task at hand. After the meeting, he says individual members keep quiet. So it's just the committee's message that's out there shaping the public perception. And only after that sunk in can individuals put their own spin on what happened or talk about their own projections of what's going to happen in the future. So you can think of those fed policymakers as being kind of like musicians. In order to make the symphony sound good, they should only play when they're supposed to. I'm Stephanie Hughes from Marketplace.

We turn now to Alaska, where the fishing industry faced major challenges this past year. Some of the industry's biggest players have sold or shuttered their processing plants due to low fish prices and high overhead costs. That's sending shockwaves through coastal communities who rely on those canneries. One of them is a small city of King Cove, near the tip of the Alaska Peninsula in the North Pacific Ocean. Its only seafood processor closed almost overnight this spring. The city is reeling from the loss of 75% of its revenue and with the larger question of the city's survival. KSDP's Theo Greenlee reports. King Cove didn't even exist until 1911 when a seafood company opened a salmon cannery

and Alaska native folks moved in from surrounding villages to work there. That fish processing plant grew to become one of Alaska's largest. Peter Pan Seafood Company employs about 700 seasonal workers here during a typical summer. That means housing 700 people in company bunk houses and feeding those people daily. Now the freezers and pantries were packed when the cannery, burdened by debt, closed just before salmon season. So the company gave the food away to the community.

Passgrounds? Oh yeah, oh, smoke shamp. Okay. Jalapenos? Yeah, one of my favorites. Ernie Newman is 65 years old. The lifelong fisherman just retired, and like most folks in town, he's a company man.

I fish for pea plant all my life, tender and forever. City clerk Cora Rosilli helped organize the food drive. Another lifelong resident, her parents met at the plant. She grew up living in company housing and hanging around the cannery with the other workers' kids. They called us the Peter Pan brats. All the town's other businesses revolve around fishing. Rosilli moonlights as a bartender at MC's by the harbor,

but she says the bar is empty these days. Everybody's affected by what's going on with Peter Pan, and it's sad to see. Food truck owner Lillian Sager says her business has been cut in half. She and her husband, well, they've had to make a tough decision. We're moving. This is our home. This is where, you know, our ancestors lived, and we want to stay here. But we're moving to Washington. Many of the folks in town are direct descendants of the Alaska Native and European families

who founded the town. That includes Mayor Warren Wilson. He's a third generation King Cove fisherman who also runs a boat welding service. He says one of his welders has also moved away to find work. He's troubled by the trend. Once you start losing your population, you lose your school, and once you start losing your school, you lose children. Once you start losing children, you lose smiley faces,

and then you don't hear the laughter anymore. That's when your community is going to die. Wilson hopes the city can convince another seafood company to buy the Peter Pan facility. An Alaska-based company took over some of Peter Pan's other facilities. Nobody purchased this plant in time for the summer salmon season. But folks here are hoping it happens in time for fall. In King Cove, I'm Theo Greenlee for Marketplace.

I'm Theo Greenlee for Marketplace. This final note on the way out today, the White House released a new plan to fight plastic pollution, calling the issue a crisis and a threat to public health. Part of the strategy is a new goal to phase out single use plastics when the federal government is buying supplies for food service operations, events and packaging by 2027 and to phase out single use plastics in all federal procurement by 2035. Our theme music was composed by BJ Liederman. Marketplace's executive producer is Nancy Fargalli. Donna Tam is the executive executive editor, Neil Scarborough is the vice president and general manager, and I'm Kimberly Adams. Have a great weekend everyone and we will be back on Monday.

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