Key Insights: GEP Global Volatility Index November 2024
The GEP Global Supply Chain Volatility Index — a leading indicator tracking demand conditions, shortages, transportation costs, inventories and backlogs based on a monthly survey of 27,000 businesses — posted -0.39 in October, marking little change from the -0.43 seen in September.
The index remained in territory that indicates one of the highest levels of spare capacity at global suppliers for more than a year, with no sight of an imminent turnaround in Western manufacturing.
Suppliers feeding the world's largest markets reported contractions in October. There was another steep rise in slack across North American supply chains due to declining factory activity in the US.
Purchasing managers at US manufacturers made their strongest cutbacks to buying volumes for nearly 18 months, showing that factories in the world's largest economy are preparing for lower production volumes.
- US Manufacturing Contraction: US manufacturers made their strongest cutbacks to buying volumes in nearly a year and a half, indicating they're preparing for lower production volumes into 2025.
- China's Manufacturing Revival: Following three months of decline, China's factories have resumed growth, driven by an uptick in procurement, even as Japan and South Korea exhibit subdued activity.
- Mounting Industrial Challenges in Europe: Germany, France, Austria and other key markets face continued declines, underscoring a prolonged industrial recession across the continent.
- Excess Global Capacity: October marked one of the highest levels of spare capacity in supply chains over the past year, with the contraction in Western markets contrasted by more resilient demand in parts of Asia.
Meanwhile, suppliers feeding Asia also reported spare capacity in October, albeit to a lesser degree than is being seen across Western markets. This is due to the sustained strong expansion of certain manufacturing industries, such as India's. In October, China's factory production growth rebounded and procurement activity rose after three months of contraction, although Japanese and South Korean producers made fewer purchases — an adverse leading indicator for manufacturing in these economies.
Europe's industrial plight remained a key feature of the latest data. Vendor capacity was significantly underutilised, reflecting a continuation of subdued demand in key manufacturing hubs across the continent. Germany's retrenching automotive manufacturing sector is a major headwind to factory output in Europe.
Additionally, October marks the 14th consecutive month where the 'items in short supply indicator' has been negative. This shows an excess supply of commodities and intermediate goods relative to current manufacturing demand globally.
Todd Bremer, Vice President at GEP, says: "We're in a buyers' market. October is the fourth straight month that suppliers worldwide reported spare capacity, with notable contractions in factory demand across North America and Europe, underscoring the challenging outlook for Western manufacturers.
"President-elect Trump inherits US manufacturers with plenty of spare capacity, while in contrast, China's modest rebound and strong expansion in India demonstrate greater resilience in Asia."
October 2024: Key findings
DEMAND: Procurement activity remains weak across the globe. Demand for commodities, components and raw materials continues to contract and at one of the steepest rates seen in 2024 so far. By region, North America saw the weakest purchasing activity in October, followed by Europe. Input demand was more resilient in Asia, but still subdued overall.
INVENTORIES: Inventory drawdowns intensified across factories worldwide in October. Reports of safety stockpiling remained low by historical standards as companies look to make their warehouses leaner to preserve cash flow and tightly manage stocks in line with the weak order situation.
MATERIAL SHORTAGES: The items in short supply indicator, an aggregate measure which tracks the availability of critical components and raw materials, remains low, pointing to robust supply levels.
LABOUR SHORTAGES: Reports of manufacturers' backlogs rising due to labour shortages ticked higher in October and were above the long-term average. However, factory employment levels have fallen in recent months, suggesting throughput has decreased as a result of lower workforce capacity and companies aren't clearing backlogs as quickly.
TRANSPORTATION: Global transportation costs were in line with their long-run average during October.
Regional supply chain volatility
NORTH AMERICA: Index at -0.72, versus -0.78 previously. The latest figure is consistent with a substantial level of spare capacity at North America's suppliers.
EUROPE: Index at -0.52, from -0.74. Albeit an improvement on September, the latest data indicates a continuation of Europe's industrial recession.
UK: Index fell notably to -0.40, from -0.12, its lowest level in six months, signalling a deterioration in the UK manufacturing sector.
ASIA: Index at -0.20, from -0.36. While indicative of spare capacity, the level of slack is much lower than seen in Western markets. India continues to have a strongly positive influence on the region.
How the GEP Global Supply Chain Volatility Index works
The GEP Global Supply Chain Volatility Index is a collaborative effort between S&P Global and GEP.
It draws from S&P Global's PMI surveys, which are distributed to 27,000 companies worldwide, a weighted aggregation of six sub-indices derived from PMI data, PMI Comments Trackers and PMI Commodity Price & Supply Indicators provided by S&P Global.
A positive value in the GEP Global Supply Chain Volatility Index indicates strained supply chain capacity, leading to increased volatility. The higher the value, the greater the strain on capacity.
Conversely, a negative value suggests underutilised supply chain capacity, resulting in reduced volatility. The lower the value, the greater the degree of underutilisation of capacity.
The index is published monthly, with the October survey available for review here.
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