Key Insights: GEP Global Volatility Index October 2024
The GEP Global Supply Chain Volatility Index decreased in September to -0.43 (August: -0.37), its lowest level in 14 months, showing that supply chain spare capacity increased for the third consecutive month and is now at its highest level since July 2023, signalling global economic weakness.
The index is a leading indicator tracking demand conditions, shortages, transportation costs, inventories and backlogs based on a monthly survey of 27,000 businesses.
This rise in underutilised vendor capacity was driven by a further deterioration in global demand. Factory purchasing activity is at its weakest in the year-to-date, with procurement trends in all major continents worsening in September and signalling gloomier prospects for economies heading into Q4.
- North America factory purchasing activity deteriorated more quickly in September, with demand at its weakest year-to-date, indicating a quickly weakening manufacturing sector.
- Factory procurement activity in China fell for a third straight month, and devastation from Typhoon Yagi hit vendors feeding Southeast Asian markets like Vietnam.
- Europe's industrial recession deepens, leading to an even larger increase in supplier spare capacity. In contrast, UK manufacturing is at full capacity.
"Manufacturers should prioritise agility and resilience"
Supplier spare capacity rose again in North America, as US manufacturers lowered their purchasing volumes aggressively in September, with a slowing of the US economy denting factory orders.
In Asia, supply chain spare capacity also showed a rise, to a year-to-date high. Slowing economic conditions in other parts of the globe led factory procurement activity in China to fall for a third straight month in September. There was also the devastating impact of Typhoon Yagi across Southeast Asia. The impact it had on Vietnam in particular caused vendors supplying this part of the region to suffer as a result.
As Europe's industrial recession intensified, it reflected the blight on major manufacturers in the continent due to macro factors – like competitive pressure from China, high energy costs and a flagging eurozone economy.
"September is the fourth straight month of declining demand and the third month running that the world's supply chains have spare capacity, as manufacturing becomes an increasing drag on the major economies," says Jagadish Turimella, Chief Operating Officer and Co-Founder, GEP.
"With the potential of a widening war in the Middle East impacting oil, and the possibility of more tariffs and trade barriers in the new year, manufacturers should prioritise agility and resilience in their procurement and supply chains."
What supply chains looked like in September
DEMAND: Global demand for raw materials, commodities and other intermediate goods deteriorated more quickly in September, reflecting a stronger downturn in procurement activity across many major global economies, such as the US, China and Germany.
INVENTORIES: In September, reports of stockpiling due to price or supply concerns remained below the long-term average.
MATERIAL SHORTAGES: The item shortages indicator fell to its lowest level since January 2020, indicating improved global raw material availability as factories retrench.
LABOUR SHORTAGES: Reports of staff shortages leading to a rise in backlogs at manufacturers were in line with historically typical levels in September. This indicates that labour supply is generally capable of meeting demand.
TRANSPORTATION: Global transportation costs once again dipped in September and were the lowest since July 2023.
Regional variations in the GEP Global Supply Chain Volatility Index
NORTH AMERICA: Index fell to a 15-month low of -0.78, from -0.62, signalling a further increase in spare vendor capacity.
EUROPE: Index fell to a nine-month low of -0.74, from -0.53, indicating a further intensification of the continent's industrial downturn. Germany continues to pull other parts of the region down with it.
UK: Index fractionally rose to -0.12, from -0.14. The UK is demonstrating some resilience to wider global economic headwinds — partly reflecting an ongoing post-election bounce.
ASIA: Index at a year-to-date low of -0.36, down from -0.07, signalling the highest level of spare vendor capacity since December 2023. In addition to a slowing Chinese market, Typhoon Yagi dented supplier activity in Southeast Asia.
How does the GEP Global Supply Chain Volatility Index function?
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 July survey available for review here.
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