GEP supply chain index slips, signaling slowing economic growth
The GEP Global Supply Chain Volatility Index fell to -0.22 in July, signaling underutilized capacity at global suppliers and a slowing of economic growth.
The index – which tracks 27,000 businesses globally to measure demand conditions, shortages, transportation costs, inventories, and backlogs – fell into underutilized capacity after two months of stretched capacity.
An index value above 0 indicates supply chains are being stressed, while a value below 0 means supply chain capacity is being underutilized.
“In July, purchasing activity by global manufacturers declined, indicating that economic growth is slowing, adding to the calls for the Federal Reserve to lower interest rates sooner rather than later,” said Mike Jette, vice president, consulting, GEP. “This is not alarming data. The world’s supply chains continue to operate efficiently, with no sign of stockpiling, shortages, or price pressures. But to head off any material slowdown in the second half of the year, manufacturers do need demand to increase.”
Europe had the highest level of slack in its supply chain, as its leading manufacturer Germany continues to grapple with a sectoral recession. Europe’s index score fell from to -0.49 in July from -0.13 in June.
North America’s index score stayed flat at -0.11, with slowing purchasing activity across all three countries – but especially Canada.
Asia, which has been driving manufacturing recovery this year, saw a drop from the 16-month high of 0.35 in June to 0.07 in July – its lowest point since April. Demand for inputs at Asian factories was at its weakest point this year because of a softening at Chinese and Japanese factories.
Reports of safety stockpiling were below typical levels, while reports of item shortages fell to their lowest level in since January. Reports of backlogs due to labor shortages were at typical levels, although transportation costs were at their highest level in 21 months, driven by Asian activity.
