December Jobs Report: Deteriorating Trend Continues

Nonfarm payroll growth registered 50K in December, a bit weaker than the consensus forecast, while revisions to job growth in the prior two months were a combined -76K. (…)

The cooling in the labor market still appears to be proceeding, but at a gradual and orderly pace. This likely will leave the FOMC on hold at its upcoming meeting on January 28. (…)

Source: U.S. Department of Labor and Wells Fargo Economics

The three-month average pace of net new job creation was -22K in December after incorporating revisions. (…)

Source: U.S. Department of Labor and Wells Fargo Economics

Wage growth finished 2025 up 3.8%, a reading that is in the “sweet spot” in our view. Average hourly earning growth is running about a percentage point faster than inflation, helping to propel growth in consumer spending, but it is not so strong that we view it as an upside risk to inflation. The solid pace of labor productivity growth over the past few years is a major help. (…)

Employers added 584,000 new jobs in 2025, about 49,000 jobs a month, on average vs 168,000 in 2024.

Private sector job gains over the past three months averaged 29k vs the 6 month average of 43k, the 2025 average of 61k and vs the 2024 average of 130k. The pre-Covid average was 177k per month. Manufacturing employment logged its eighth straight month of declines, meaning the U.S. has steadily lost 72,000 manufacturing jobs since Trump announced “Liberation Day” tariffs.

Over the three-year period since January 2023, private education and healthcare services, leisure and hospitality and government together accounted for 93% of the 5.2m jobs added in the US economy.

All other sectors, (tech, construction, manufacturing, business services, financial services, retail, transport and logistics, nearly 60% of all employment and generally the most dynamic sectors) created only 7% of the jobs during that period. In December, this group actually lost 51k jobs and has only seen one up month out of the past eight. 

Private employers’ so called “no hiring-no firing” policy is making them cut the average workweek to its historical low ex-recession. Worryingly, the only two job creating private groups in 2025 significantly cut average hours since 2024 well below historical levels, actually reaching the depth of the 2009-09 recession.

Labor demand (jobs x hours) for these two groups is slowing rapidly, from +2.9% in 2024 to +2.1% in H1’25 to +1.8% in Q4’25. Hiring while reducing hours can only go so far.

The BLS revised the previous 2 months down 76k, validating Powell’s estimate that the Bureau is overestimating payrolls growth by around 60k per month. Looking over the past six months, non-farm payrolls growth has averaged just 14,500, so adjusting for Chair Powell’s assessment on the measurement error, this implies the US is losing more than 45,000 jobs per month.

This economy is not as solid as the GDP numbers suggest. Thank the 76 million baby boomers for aging…

… and spending as Ed Yardeni says that this large and growing cohort is helping bring the US savings rate down.

But a recent study by the Teachers Insurance and Annuity Association of America suggests caution on this belief:

The study finds that contrary to standard economic life-cycle theoretical models that predict gradual asset decumulation to support consumption in retirement, many retirees retain substantial financial wealth in later life.

The median retiree retains approximately 68% of their age-65 wealth by age 72, and 40% of 65-year olds increase their wealth holdings by age 72.

Financial literacy emerges as a crucial factor, with highly literate retirees beginning retirement with more wealth, decumulating more slowly, and being significantly more likely to accumulate additional assets during retirement.

Asset type matters more than overall wealth level in determining decumulation speed and patterns.

From a consumer spending viewpoint, job growth, looked at quarterly, has disappeared, and even turned negative in Q4, leaving only wages to keep labor income growth near 4.0% annualized.

Labor income growth has slowed from 5.3% YoY in the spring of 2025 to 4.3% in Q4 while inflation has crept up from 2.3% to 2.8%. Real consumer spending is thus likely slowing below 1.5% entering 2026.

In fact, wage growth could slow to or below 3% in 2026 per this KKR chart:

Three percent wage growth, stable hours and zero job gains would likely slow consumer spending near stall speed unless inflation recedes meaningfully.

Trump’s efforts to increase affordability for the mid to low classes may be politically motivated but the economy actually needs it more than most people think. Not that the measures are all smart though…

• President Calls for 10% Cap on Credit-Card Interest Rates

• Trump’s $200 Billion MBS Order Asserts New Power Over Markets The purchases could exert meaningful pressure on mortgage rates.

• Trump Blindsides Wall Street Allies With Crackdown on Housing Investors

• The president said he would unveil more details on housing

• The US ended the year with an effective tariff rate of more than 10% — the highest since WW2 (Financial Times)

  

… nor usual for a truly capitalistic country.

BTW, “The US government hasn’t taken a direct stake in a healthy commercial firm since at least the 1950s. This year, it’s taken FOURTEEN, and more are on the way.” (@scottlincicome)

Trump’s Investigation of Powell Is Also a Warning to the Next Fed Chair The investigation reflects the lengths to which the president will go to control the central bank

The criminal investigation into Federal Reserve Chair Jerome Powell isn’t ultimately about the Fed’s headquarters, or Powell, or even interest rates. It’s about power. President Trump intends to take control of the central bank, no matter what the law or the courts say.

In that sense, the investigation is also a message to whoever succeeds Powell, likely either Trump adviser Kevin Hassett or former Fed governor Kevin Warsh. Both claim they will be independent. But if either sets interest rates contrary to Trump’s desires, they can expect the same treatment as Powell. That’s a powerful incentive to stay in line.

Since returning to power a year ago, Trump has steadily obliterated the lines that once separated the president from other sources of federal authority. He fired Democratic members of agencies such as the Federal Trade Commission contrary to law, sacked career officials in justice, defense and law enforcement deemed insufficiently loyal, and trampled on Congress’ authority over spending and revenue.

The Fed was an exception. Because politicians always want lower interest rates, which can lead to inflation, the Fed, by law and tradition, operates independently from the president and Congress. Presidents have pressured the Fed anyway, but usually behind closed doors, while publicly claiming to respect its independence.

Not Trump. He insists he should have some say over interest rates, and many in his administration consider independence antithetical to the president’s supreme authority over the executive branch. (…)

The Supreme Court signaled it wouldn’t allow Trump to fire Powell or any of the other six governors without cause.

Undeterred, Trump has simply sought to engineer a cause. In August he tried to fire governor Lisa Cook for alleged mortgage application misrepresentations. Cook denied the allegations and has remained on the Fed while awaiting the Supreme Court to rule on the legality of Trump’s action.

Trump made it clear his goal was to replace Cook with a loyalist in order to get control of the seven-member board of governors, who, along with five of 12 reserve bank presidents, vote on interest rates. “Once we have a majority, housing is gonna swing and it’s gonna be great,” he said at the time.

This latest attack looks similar in design and intent. “Trump wants not just lower rates, but control of the board,” Mark Spindel, a Fed historian, said Sunday. Treasury Secretary Scott “Bessent and Trump want their hands on the institution” to make more sweeping changes, such as to how the Fed supervises banks or uses its balance sheet to intervene in markets, he said.

Bill Pulte, director of the Federal Housing Finance Agency and one of Trump’s most partisan officials, kicked off the campaign attacking Powell for cost overruns on renovations to the Fed’s headquarters. The DOJ is scrutinizing Powell’s testimony to Congress on the project.

Powell said this is a pretext for his refusal to bend to Trump’s wishes. Trump denied that to NBC News Sunday. Still, it is hard to explain the ferocity with which the administration has attacked Powell any other way.

Federal projects, including Trump’s, routinely go over budget, without comparable recriminations. The price tag on Trump’s White House ballroom has already doubled, to up to $400 million from $200 million (albeit to be paid by private donors). He said before his first term that a border wall would cost $8 billion to $12 billion and Mexico would pay. Mexico didn’t pay, and more than $60 billion has now been earmarked for the project.

Legislators often complain that witnesses lie or mislead. Yet that seldom results in prosecution—especially of the administration’s own appointees.

To secure conviction, prosecutors must prove a falsehood was made “knowingly and willfully” and be “materially” false, fictitious or fraudulent. 

Two former allies of Trump were accused of lying to Congress during his first term. Last year Trump pressured the Justice Department to indict former Federal Bureau of Investigation director James Comey, a Trump adversary, for lying to Congress. A federal judge dismissed the charges, ruling that the prosecutor Trump chose to bring the cases was unlawfully appointed.

It is unclear whether Powell will ultimately be indicted, much less convicted. Powell’s statement Sunday signaled he is refusing to be cowed, which means, for now, interest-rate policy shouldn’t change.

That Trump officials are going after Powell without awaiting the Supreme Court’s decision on Cook’s removal reflects their determination to break the Fed’s independence. They may succeed, even if they fail in court. The message to all Fed officials is that defying Trump is an invitation to have their backgrounds and public statements investigated for a pretext for removal. Given that, who would wish to serve? Presumably, only someone ready to deliver what Trump wants.

Bloomberg:

President Donald Trump faced immediate bipartisan pushback Sunday night after Federal Reserve Chair Jerome Powell accused the Department of Justice of launching a grand jury investigation as a pretext to pressure and intimidate the central bank.

Senator Thom Tillis, a key Republican on the Banking Committee who isn’t running for reelection, vowed to oppose any Trump nominees to the Fed until the matter is resolved.

“If there were any remaining doubt whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none,” Tillis said in a statement. “It is now the independence and credibility of the Department of Justice that are in question.”

“I will oppose the confirmation of any nominee for the Fed — including the upcoming Fed Chair vacancy — until this legal matter is fully resolved,” said Tillis, who also sits on the Judiciary Committee, which has oversight over the Justice Department.

Iran Edges Closer to a Revolution That Would Reshape the World If the uprising succeeds in toppling the Islamic Republic, it would upend global geopolitics and energy markets — with the risk of widespread chaos.

As protesters pour into the streets of Iran night after night, leaders across the region and around the world are grappling with the possibility that the Islamic Republic could be overthrown — a seminal event that would transform global geopolitics and energy markets.

The regime of Supreme Leader Ayatollah Ali Khamenei has weathered bouts of protests many times, but demonstrations that began two weeks ago are spreading — by some accounts, hundreds of thousands of people defied authorities’ threats and a brutal crackdown to take to the streets over the weekend, from the capital Tehran to dozens of other cities across the nation of 90 million.

They are being cheered on by President Donald Trump, fresh off the capture of Venezuela’s Nicolas Maduro, and the US leader has in recent days repeatedly threatened to strike Iran, suggesting that America is back in the regime change business. (…)

Brent crude surged more than 5% on Thursday and Friday to over $63 a barrel as investors priced in the possibility of supply disruptions in OPEC’s fourth-biggest producer. (…)

More than 500 protesters have been killed in the past two weeks, according to the AP, citing the US-based Human Rights Activists News Agency, and more than 10,000 have been arrested in demonstrations triggered by a currency crisis and economic collapse, but now also focused on the regime.

Authorities have tried to block the internet and telephone networks since Thursday, as they seek to quell Iranians’ growing outrage over government corruption, economic mismanagement and repression. Foreign airlines have canceled flights to the country.

Trump’s repeated warnings to Iran that the US will strike if it kills peaceful protesters come as the president escalates his assault on the post-World War II global order in a stunning assertion of American power that’s included claiming Venezuela’s oil after seizing Maduro, and threatening to take over Greenland from NATO ally Denmark.

Israel, which battered Iran during a US-assisted 12-day air war in June, is liaising closely with European governments about the situation on the ground, according to a senior European official, who asked not to be named discussing private talks.

If the regime does fall, it would be a blow to Russian President Vladimir Putin, who would lose another foreign ally after Maduro this month and the overthrow of Syria’s Bashar al-Assad just over a year ago, the official added. (…)

On Saturday, Reza Pahlavi, the son of the former shah who’s exiled in the US and positioning himself as an opposition leader, urged petroleum workers to strike. Oil strikes in 1978 were one of the death knells of his father’s monarchy because of how they immediately hit the economy. (…)

Trump may well be tempted, for all the risks, to try to topple a government that’s been an archenemy to the US and Israel for over 45 years.

“The balance of power would change dramatically,” Mark Mobius, the veteran emerging markets investor, said of the downfall of the Islamic Republic. “The best outcome would be a complete change in the government. The worst outcome would be continued internal conflict and a continuing rule by the current regime.” (…)

Iran has warned that if it’s attacked, American assets in the region — where it has deep commercial ties and tens of thousands of troops stationed — and Israel will be “legitimate targets for us.”

The Islamic Republic has been severely weakened in the past two years, thanks to its stagnating economy, rampant inflation and Israel striking both it and its proxies. But it retains a large and sophisticated arsenal of ballistic missiles able to hit targets across the Middle East, from military bases to oil installations, and the regime still has the backing of the country’s myriad security forces, including the all-important Islamic Revolutionary Guard Corps.

For the GCC and the likes of Turkey and Pakistan, the worst outcome would be chaos in Iran, said Ellie Geranmayeh, deputy program director for the Middle East and North Africa at the European Council on Foreign Relations. It’s an eventuality made more possible by the sheer diversity of Iranian protesters, who include everyone from urban, secular elites to religious conservatives and lack a unifying leader. (…)

US and Israeli strikes might even strengthen the government and reduce the appeal of the protest movement. In June, there was a surge in nationalism as the Jewish state and Washington rained down bombs.

The Islamic Republic probably won’t survive in its current form by the end of 2026, according to Dina Esfandiary, a Middle East analyst at Bloomberg Economics. The most likely scenario, she said, is a leadership reshuffle that largely preserves the system or a coup by the IRGC, which could mean greater social freedom — the organization is run by generals rather than clerics — but less political liberty and a more militaristic foreign policy.

The chances of a revolution are still fairly low, she said.

“A collapse appears unlikely for now,” she said. “Iranians are frightened of chaos, having seen it wreak havoc in neighboring Iraq and Syria. More importantly, the government is cracking down hard.”

“I don’t think a collapse of the regime would be pretty,” said Usher, the former CIA analyst. “Short-term, I could imagine some fracturing of the country as ethnic minority groups and some provinces pursue autonomy from Tehran. The IRGC will fight vigorously to save the regime so I think there’d be strong possibility for large-scale violence.”

Meanwhile in the US of A,

1. Trump to The New York Times, when asked if there are any checks on his global ambitions: “Yeah, there is one thing. My own morality. My own mind. It’s the only thing that can stop me.”
2. Stephen Miller to CNN’s Jake Tapper: “[Y]ou can talk all you want about international niceties and everything else. But we live in a world, in the real world, Jake, that is governed by strength, that is governed by force, that is governed by power.”

A while ago, upon the foundation of the Republic:

• “the very definition of a Republic, is ‘an Empire of Laws, and not of men.’”
• “the best republican design is the one that secures an impartial and exact execution of the laws.”
• “disorder tends to rise with despotism, where the will of one man, is the only law.”

(John Adams in in Thoughts on Government in 1776).

Abraham Lincoln took this further by proposing that “reverence for the laws” should become the “political religion” of the nation. In his Lyceum Address, he urged that this respect for law be:​

• “Breathed by every American mother to the lisping babe”

• “Preached from the pulpit”

• “Proclaimed in legislative halls, and enforced in courts of justice”

Lincoln warned that if the laws are ignored, the people will lose their attachment to the government, eventually welcoming a dictator who promises order.

‘Ho-Hum’ Canada Jobs Report Shows Unemployment Reverting to 6.8%

Employment rose by 8,200 in December, bringing cumulative job gains to 188,800 over the past four months, Statistics Canada reported Friday. The jobless rate, however, jumped 0.3 percentage points to 6.8%, mostly reversing a decrease the previous month.

An influx of 81,000 people into the labor force in December, the biggest jump since late 2024 and concentrated in Ontario and Quebec, helped push unemployment higher. The participation rate rose to 65.4%.

Most of the people who joined the labor force last month didn’t find jobs, pushing unemployment up by 72,900, the biggest monthly increase since August 2022.

The relatively weak report comes after three straight months of surprisingly strong job gains, which reversed steep losses over Canada’s summer months. Taken together, the data point to an economy clearly feeling the strain of the trade dispute with the US.

In total, Canada added 226,300 jobs in 2025, a 1.1% gain that was the weakest annual pace for a calendar year since 2016, excluding the pandemic. Job vacancies also fell through most of the year, pointing to softer hiring demand, the statistics agency said.

Yearly wage growth for permanent employees decelerated to 3.7%.

CONSUMER WATCH

Consumer momentum continued in December after a chilly November

In December, total credit and debit card spending per household increased 1.8% year-over-year (YoY), up from 1.3% YoY in November, according to Bank of America aggregated card data.

Meanwhile, seasonally-adjusted (SA) spending growth per household rose 0.5% month-over-month (MoM), following the flat reading in November. Looking across 2025, consumers ended on solid footing despite some slippage in the first half of the year.

Spending behavior showed a distinctly “K-shaped” pattern in the second half of 2025. This continued into December, with lower-income households increasing their three-month average card spending just 0.4% YoY, while those with higher incomes saw a 2.4% gain. While the gap remains around 2 percentage points (pp), it has been relatively stable over the past six months. (…)

Higher tax refunds in 2026 are likely to provide an important boost, temporarily bolstering discretionary spending growth, in our view. The One Big Beautiful Bill Act (OBBBA) included several tax benefits that should drive larger refunds this year (as will the fact that the Internal Revenue Service (IRS) did not adjust withholdings last year). These changes included an increase in the standard deduction, new deductions for tip and overtime income, and a rise in the state and local tax (SALT) deduction cap.

BofA Global Research estimates that refunds in 2026 could be about $65bn higher than 2025, a rise of 18%. The majority of these payments will be made between February and April.

While higher earners may possibly get the biggest boost, lower-income households won’t be left out entirely.

Some lower- and middle-income households should gain, given they are more likely to work in sectors such as leisure and hospitality, in which tips and overtime can drive earnings. But, at the same time, the changes to SALT, which increased the cap on state and local tax deductions, will likely benefit higher-income households.

In fact, the non-partisan Tax Policy Center has estimated that the largest impact on cash income in 2026 from the OBBBA will likely benefit people with the highest incomes.

However, importantly, while the largest absolute benefits from OBBBA in 2026 are expected to accrue to higher-income households, the proportional impact on spending may still be greater for lower-income households.

In Bank of America internal deposit data, we find that refunds as a share of average monthly spending are significantly larger for lower-income households than for middle- or higher-income households. So even if the growth in refunds was fairly uniform across the income distribution, as it was in 2025, it could still boost lower- income household spending – and take some pressure off their discretionary “nice-to-have” spending budgets.

US Productivity Accelerates to Fastest Pace in Two Years

US labor productivity accelerated in the third quarter to the strongest pace in two years, adding to evidence that efficiency gains are suppressing inflationary pressures from wages.

Productivity, or nonfarm employee output per hour, soared at a 4.9% annualized rate after an upwardly revised 4.1% advance in the second quarter, data from the Bureau of Labor Statistics showed Thursday.

US economic growth powered ahead in the third quarter at the fastest pace since 2023, despite a slowing labor market. Unit labor costs — what businesses pay employees to produce one unit of output — dropped 1.9%, following a decrease in the prior quarter. That marked the first back-to-back declines since 2019. (…)

Federal Reserve officials can take comfort in continued efficiency gains because they limit wage-driven inflationary pressures. Labor costs are the biggest expense for many businesses, so companies turn to new technology and equipment to improve worker efficiency. (…)

In addition to helping contain labor costs, the resurgence in productivity in mid-2025 suggests companies are attempting to mitigate the impact of higher duties on imported goods. It also highlights how companies can use technology to get by with lean staffing. (…)

The productivity report showed output in the third quarter increased an annualized 5.4% after advancing at a 5.2% rate in the prior three months.

Hours worked rose 0.5% in the third quarter, while hourly compensation, unadjusted for inflation, increased an annualized 2.9%. After adjusting for inflation, worker compensation declined at a 0.2% pace.

From Ed Yardeni:

Wells Fargo:

The solid outturn reinforces that the underlying trend in productivity remains stronger than the prior cycle (2.0% since the end of 2019 versus 1.5% from 2007-2019) and should help to allay concerns over the current state of inflation.

Retail Crowd’s Buying Power Signals More Gains for US Stocks

Retail traders have extended a buying spree into the new year, following a record-setting performance in 2025, an analysis from JPMorgan Securities’ Arun Jain shows. Purchases in the first four trading days of January hit the second-highest level in almost eight months, the firm’s data showed, while daily buying was consistently above the 85th percentile of observations, underscoring unusually strong conviction.

That confidence has helped stabilize markets during recent pullbacks. Considering the group’s growing influence on Wall Street, if retail traders keep snapping up equities, gains in the US stock market are likely to persist.

“Markets have been seemingly more driven by flows of funds than valuations, so — as long as individual investors are willing and able to commit money to stocks — that’s a positive sign for broad markets,” said Steve Sosnick, chief strategist at Interactive Brokers.

So far, the signal is flashing green. Since the start of the year, retail investors have bought about $10.1 billion of US equities — mainly via exchange-traded funds — far exceeding the 12-month weekly average of roughly $6.5 billion, JPMorgan data showed.

Retail inflows in 2025 were nearly double the five-year average, surpassing the prior record set in 2021 by 17% and exceeding 2024 levels by almost 60%, the bank’s data show. December alone marked the largest monthly buying spree since the post–Liberation Day buy-the-dip episode in April. (…)

Single-stock trading cooled starting in May, but ETF buying continued apace, helping to keep overall equity demand elevated.

One in two US households own stocks and the percentage of households’ net worth tied to the stock market is over 30%, marking an all-time high, according to Barclays’ global head of equities tactical strategies Alexander Altmann. Citadel Securities said individual investors now account for 21% of trading volume in US stocks and roughly 60% of customer volume at Options Clearing Corp., the biggest equity derivatives clearing organization. (…)

“The buy-the-dip strategy has worked extraordinarily well for a wide swath of investors for a long period of time,” Sosnick said. “It’s reasonable to expect that it will remain a popular strategy until it stops working, as all ‘foolproof’ strategies eventually do.”

One notable shift was into precious metals. Retail investors bought more shares of SPDR Gold Shares ETF (GLD) in 2025 than in the prior five years combined, JPMorgan’s Jain wrote. The fund climbed about 64% in 2025, fueled by rising gold prices and heavy central-bank buying as heightened geopolitical risks stoked investor demand.

Retail enthusiasm has also spilled over into derivatives. Options activity rebounded sharply after a holiday pause, with individual investors buying call options in 35 of the past 36 weeks, according to Scott Rubner, Citadel Securities’ head of equity and equity derivatives strategy.

“The defining feature of retail activity in 2025 was persistent bullishness and after earning more than $20 billion in options on our platform over the course of the year, retail investors enter January armed with capital to deploy,” Rubner wrote in a note to clients Tuesday.

Citadel Securities expects that dynamic to continue this year, particularly in buzzy retail themes like quantum computing, robotics and automation, as well as space travel.

It’s fitting here to reprint part of Richard Bernstein’s 2026: Boring is beautiful:

2025 was a historic year for speculation across the financial markets. The economy is healthy, and the banking system is functioning well, so the Fed’s rate cuts and the anticipation of future rate cuts have resulted in excess liquidity that the economy simply can’t absorb, and excess liquidity and leverage form the life blood of speculation.

Whether it was the equity market’s emphasis of AI, SPACs, and Meme stocks, the fixed-income market’s near-record narrow credit spreads, individual investors’ record use of options and levered ETFs, or the hoarding of cryptocurrencies, speculation was rampant in 2025. (…)

When sports betting is considered a new asset class, as it apparently is today, it’s easy to argue that speculation is dominating investors’ thoughts. Historically, it’s been prudent to keep portfolios simple and boring as speculation reaches a crescendo because boring suddenly becomes beautiful when speculation subsides.

• US investors’ equity allocation is at an all-time high GS

@MikeZaccardi

AI CORNER

DeepSeek’s AI gains traction in developing nations, Microsoft report says

DeepSeek, the Chinese tech startup that rivals OpenAI‘s ChatGPT, has been gaining ground in many developing nations in a trend that could narrow the gap of artificial intelligence adoption with advanced economies, a new report suggested.

In the Thursday report, researchers from Microsoft said global adoption of generative AI tools reached 16.3% of the world’s population in the three months to December, up from 15.1% in the previous three months.

Yet the divide of AI adoption in developed and developing countries is widening, the report noted, with AI adoption across what Microsoft characterizes as the global north growing nearly twice as fast as in the global south. (…)

Countries that invested early and consistently in digital infrastructure and AI led in terms of shares of users, including the United Arab Emirates, Singapore, France and Spain, according to the report. Some of Microsoft’s figures overlapped with the findings of a Pew Research Center survey published in October that mapped which countries are more excited than concerned about AI. In both reports, for instance, South Korea stood out in its embrace of AI. (…)

His researchers found that the rise of Chinese startup DeepSeek, which was founded in 2023, has fueled wider AI adoption across the developing world given its free and “open source” models – with key components available for anyone to access and modify. (…)

DeepSeek offers a free‑to‑use chatbot on web and mobile, and has also given developers global access to modify and build on its core engine. Its lack of subscription fees has “lowered the barrier for millions of users, especially in price‑sensitive regions,” Microsoft’s report said.

“This combination of openness and affordability allowed DeepSeek to gain traction in markets underserved by Western AI platforms,” the report added. “DeepSeek’s rise shows that global AI adoption is shaped as much by access and availability as by model quality.”

Developed countries including Australia, Germany and the U.S. have sought to limit the use of DeepSeek over alleged security risks. Microsoft last year banned its own employees from using DeepSeek. Adoption of DeepSeek remained low in North America and Europe, the report found, but it surged in its home country China, as well as Russia, Iran, Cuba, Belarus – places where U.S. services face restrictions or where foreign tech access is limited.

In many places, DeepSeek’s prevalence correlated with it being a default chatbot on widely available phones made by Chinese tech companies like Huawei.

DeepSeek’s market share in China was 89%, the report estimated. That’s followed by Belarus’s 56% and Cuba’s 49%, both of which also had low AI adoption more broadly. In Russia, its market share was around 43%.

In Syria and Iran, DeepSeek’s market share reached around 23% and 25%, respectively, the report added. In many African countries including Ethiopia, Zimbabwe, Uganda and Niger, DeepSeek’s market share was between 11% to 14%.

“Open‑source AI can function as a geopolitical instrument, extending Chinese influence in areas where Western platforms cannot easily operate,” the report said.

Politics aside, the Microsoft report has other important info:

• Global adoption of artificial intelligence continued to rise in the second half of 2025, increasing by 1.2 percentage points [to 16.3%] compared to the first half of the year, with roughly one in six people worldwide now using generative AI tools, remarkable progress for a technology that only recently entered mainstream use. 
• Despite progress in AI adoption, the data shows a widening divide: adoption in the Global North grew nearly twice as fast as in the Global South. As a result, 24.7 percent of the working age population in the Global North is now using these tools, compared to only 14.1 percent in the Global South. 

• Countries that have invested early in digital infrastructure, AI skilling, and government adoption, such as the United Arab Emirates, Singapore, Norway, Ireland, France, and Spain, continue to lead.
• The second half of the year in the United States shows that leadership in innovation and infrastructure, while critical, does not by themselves lead to broad AI adoption. The U.S. leads in both AI infrastructure and frontier model development, but it fell from 23rd to 24th place in AI usage among the working age population, with a 28.3 percent usage rate. It lags far behind smaller, more highly digitized and AI-focused economies.
• South Korea stands out as the clearest end-of-year success story. It surged seven spots in the global rankings, climbing from 25th to 18th, driven by government policies, improved frontier model capabilities in the Korean language, and consumer-facing features that resonated with the population. Generative AI is now used in schools, workplaces, and public services, and South Korea has become one of ChatGPT’s fastest-growing markets, leading OpenAI to open an office in Seoul.

• The United States maintained strong usage in absolute numbers [28.3%], but dropped from 23rd to 24th place, reflecting the fact that a smaller proportion of the US population uses AI compared to several smaller highly digitized nations.

AI Diffusion Over Time by Country

• DeepSeek has clearly lowered entry barriers for millions, suggesting that the next billion AI users may emerge not from traditional tech hubs but from the Global South, enabled by open-source innovation.

A fantasy M&A guide to buying Greenland The process might be thought of as analogous to one company buying another

Buying and selling countries sounds like the kind of thing that would only happen in a board game. Yet US President Donald Trump is considering making a bid for Greenland, the White House confirmed on Wednesday.

Imagine, for a moment, that the US does indeed think it can acquire Greenland from current owner Denmark in some kind of commercial transaction. The process might then be thought of as analogous to one company buying another. In this case, it would be an unsolicited bid, perhaps like the one Paramount Skydance has made to derail Netflix’s acquisition of media outfit Warner Bros Discovery.

The first question is what Greenland is worth. Finance students will recall two ways to approach that in an M&A scenario.

One is “intrinsic valuation”. The American Action Forum, a think-tank, totted up Greenland’s barely tapped mineral reserves at market prices, applied a probability weighting of sorts, and arrived at $186bn. Double that to factor in the value of owning a region critical in a theoretical war with Russia, and call it $370bn.

Alternatively there’s “relative valuation”, which calls upon similar past transactions. Using the same price per square mile as 1803’s Louisiana Purchase, and converting it into today’s money based on historic inflation rates, the price is a measly $300mn. But use instead the 1917 purchase of the comparatively tiny Virgin Islands, also formerly Danish, and that rises to a heady $3.8tn.

In this case, what matters isn’t valuation maths but effective negotiation — the other element of M&A. What does it take to get enough of the right people to agree to a change of control?

Since Denmark says Greenland has the right to declare full independence, there’s a theoretical path for its 57,000 residents to voluntarily embark on a process, no doubt a convoluted one, of swapping Danish rule for American stewardship. Seen in this light, buying Greenland would actually be quite a lot like buying a company: convince enough shareholders to back your offer, and the prize is yours.

The US could offer each resident US citizenship and a welcome bonus of $1mn, and the total cost would be some $57bn, increasing the US national debt by just 0.1 per cent. Elon Musk, who has expressed support for a union, could even throw in free Teslas for all.

The catch is that a US-Greenland merger is actually less like a straight takeover and more like a cash and stock deal, where the “stock” involves becoming American. Just as in an M&A battle — think of Netflix offering a slug of stock to WBD — the question is not just about the sums on offer but the attractiveness of the acquirer’s shares.

There, Trump has a problem. The US is rich and mighty. But as role models go, it is a flawed one, with lower life expectancy than peers, healthcare twice as expensive as Denmark’s, and a gun homicide rate 65 times higher.

A poll by Verian found 85 per cent of Greenlanders would rather not turn American. Besides, the US is run by a government that thinks countries can be traded like companies. That alone makes it a tough sell.

Not so crazy scenario per Reuters:

Trump considers paying “Greenlanders” $10,000 – $100,000 per person to join the U.S. and support secession from Denmark — Reuters

Sounds like a low bid.

The irony is Trump being even interested in buying anything with “green” in it…