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What do businesses need to operate? Electricity, water and gasoline are near the top of the list, and recent infrastructure failings suggest the foundations of the US economy may be on shakier ground than thought.
In February, extreme weather overwhelmed the electric grid in Texas, causing days of power and water outages in a state where many people depend on electric heat. Oil production plummeted and refineries were forced to close.
Three months later, a criminal gang believed to be operating in Eastern Europe launched a cyberattack on the Colonial Pipeline, which stretches from Texas to New Jersey and transports half the fuel consumed on the East Coast. Panic buying and gas shortages followed.
Both snafus caused real trouble for consumers and businesses, but they are far from isolated events. The US Department of Homeland Security warned in February 2020 that a cyberattack had forced a natural gas compression facility to close for two days. In 2018, multiple US natural gas pipeline operators were hit by an attack on their communication systems.
The threats from cyberattacks and extreme weather have been well known for years, but experts say wide swaths of the United States’ critical infrastructure remain vulnerable. The private sector and government both have roles to play in hardening defenses and preventing future damage.
“The ransomware attack on the Colonial Pipeline in the US shows the critical importance of cyber resilience in efforts to ensure secure energy supplies,” Fatih Birol, the head of the International Energy Agency, said on Twitter. “This is becoming ever more urgent as the role of digital technologies in our energy systems increases.”
The private sector owns roughly 85% of US critical infrastructure and key resources, according to the Department of Homeland Security. Much of that needs an urgent upgrade. The American Society of Civil Engineers estimates there will be a $2.6 trillion shortfall in infrastructure investment this decade.
“When we fail to invest in our infrastructure, we pay the price. Poor roads and airports mean travel times increase. An aging electric grid and inadequate water distribution make utilities unreliable. Problems like these translate into higher costs for businesses to manufacture and distribute goods and provide services,” the group warned.
As the Colonial Pipeline crisis unfolded, President Joe Biden signed an executive order that is designed to help the government deter and respond to cyber threats. The order will establish standards for software purchased by federal agencies, but it also calls on the private sector to do more.
“The private sector must adapt to the continuously changing threat environment, ensure its products are built and operate securely, and partner with the federal government to foster a more secure cyberspace,” the order states.
The private sector can work more closely with the government, analysts say, including improved information sharing with law enforcement agencies. Corporate boards need to be fully engaged on cyber issues, and management should relentlessly enforce basic digital hygiene measures including the use of strong passwords. If hackers demand a ransom, it’s best to not pay.
Experts say that regulators need to increase oversight of critical infrastructure. The Transportation Security Administration, for example, is charged with regulating pipeline cybersecurity. But the agency issues guidelines not rules, and a 2019 watchdog report found it lacked cyber expertise and had only one employee assigned to its Pipeline Security Branch in 2014.
“For twenty years the agency has chosen to take a voluntary approach despite ample evidence that market forces alone are insufficient,” Robert Knake of the Council on Foreign Relations said in a blog post.
“It may take years to get the pipeline industry to a point where we can have confidence that companies are appropriately managing risks and have constructed systems that are resilient,” he added. “But if it is going to take years to secure the nation, it is well past the time to get started.”
Biden, meanwhile, is pushing his roughly $2 trillion plan for improving the nation’s infrastructure and shifting to greener energy as part of the solution.
“In America, we’ve seen critical infrastructure taken offline by floods, fires, storms and criminal hackers,” he told reporters last week. “My American Jobs Plan includes transformative investments in modernizing and in securing our critical infrastructure.”
But critics say the infrastructure proposal doesn’t do enough to address malicious cyber security, especially in light of the Colonial Pipeline attack.
“This is a play that will be run again, and we’re not adequately prepared. If Congress is serious about an infrastructure package, at front and center should be the hardening of these critical sectors — rather than progressive wishlists masquerading as infrastructure,” Ben Sasse, a Republican senator from Nebraska, said in a statement.
Are prices going up? That can be hard to measure
Just about everything is getting more expensive as the US economy rebounds and Americans spend more on shopping, traveling and eating out.
US consumer prices in April shot up 4.2% from a year earlier, the Bureau of Labor Statistics reported last week. It was the biggest increase since 2008.
Big moves: The biggest driver of inflation was a steep 10% increase in used cars and truck prices. Prices for shelter and lodging, airline tickets, recreational activities, car insurance and furniture also contributed.
Rising prices unnerve investors because they could force central banks to pull back on stimulus and raise interest rates sooner than expected. This week, investors will be watching to see if the inflationary trend is taking hold in Europe, with price data due Wednesday.
But spare a thought for the bean counters tasked with calculating inflation during a pandemic, when buying patterns have changed dramatically because of lockdowns and the big shift to online shopping.
“On a practical level, statistics offices have faced the problem of having to measure prices when many items are simply not available for purchase due to lockdowns. They also need to account for shifts in the timing of seasonal sales caused by the pandemic,” said Neil Shearing, group chief economist at Capital Economics.
“All of this means that ‘measured’ inflation, which is to say the monthly figure reported by statistics offices, may differ from the true rate of inflation on the ground,” he added.
Monday: Tencent Music earnings
Tuesday: Home Depot, Macy’s, Walmart and Baidu earnings; US housing starts and building permits
Wednesday: JD.com, Lowe’s, Target, Cisco and L Brands earnings; EIA report on crude oil inventories; EU inflation
Thursday: Kohl’s, Applied Materials and Ross Stores earnings; US unemployment claims
Friday: Deere and Foot Locker earnings; US existing home sales