Key Insights: GEP Global Volatility Index September 2024

August marked two successive months of underutilised capacity across the world's supply chains, and the lowest level of input demand in eight months, as global economic conditions deteriorated, reported by Global Supply Chain Volatility Index for August.

Suppliers in all parts of the globe experienced a slowdown in activity during August.

Conditions in North America were the weakest — in fact, vendors used by manufacturers in the region recorded the greatest level of unused capacity since June 2023.

Factories in all three of the continent's economies, but especially the US, recorded lower purchasing activity in August as a result of months of below-average demand, highlighting a diminished near-term outlook.

For the first time since March GEP's data shows spare capacity across Asian supply chains.

Procurement activity in China weakened, which was a key driver of August's downturn in vendor activity, offsetting strength in India.

Europe's manufacturing recession continued to dampen supply chains, with the continent's big-two economies Germany and France presenting with the weakest outcomes.

In contrast to the continent, UK manufacturers are close to full inventory utilisation.

"What is most concerning in our August data is that manufacturers are aggressively drawing down their inventory suggesting they're preparing for a sustained soft patch," says Neha Shah, President & Co-founder at GEP Worldwide.

"To head off a material slowdown in the second half of the year, manufacturers need to see interest rates lowered, and for the US, China and the EU to avoid raising tariffs and trade barriers."

What supply chains looked like in August

DEMAND: Global demand for raw materials, commodities and other necessary components like semiconductors shrank in August at an accelerated pace that was the strongest in the year-to-date. The globe's two economic powerhouses, the U.S. and China, both reported lower procurement activity as well as other major manufacturing hubs like Germany.

INVENTORIES: Safety stockpiling was reduced to the greatest extent since March. Reports from global businesses of inventories rising because of supply or price concerns were well below historically typical levels as firms targeted cost savings and lean inventory management amid softening economic conditions.

MATERIAL SHORTAGES: Reports of item shortages fell for a second successive month and were their lowest since January 2020 as weaker demand had clearly boosted vendor stock levels.

LABOUR SHORTAGES: Reports of manufacturers' backlogs because of insufficient staffing capacity were muted in August, holding close to their long-term trend level. This indicates that labour supply is generally capable of meeting demand.

TRANSPORTATION: After having risen in recent months and reached the highest level since October 2022 in June and July, global transportation costs cooled slightly in August. They were still slightly greater than their long-term average, however.

Regional variations in the GEP Global Supply Chain Volatility Index

NORTH AMERICA: Index fell sharply to -0.62, from -0.11, signalling the highest level of vendor spare capacity since June 2023. Procurement activity in the US was the weakest across the region during August.

EUROPE: Index decreased to -0.53, from -0.49 as the continent's industrial recession intensified. Factory demand in Germany and France deteriorated rapidly.

UK: Index slipped back into negative territory, falling from 0.11 to -0.14, signalling slack in UK supply chains for the first time since April.

ASIA: Index fell to -0.07, from 0.07, indicating underutilised capacity surrounding suppliersfor the first time in five months. Although factory activity remains robust in India, procurement managers in China reported cutbacks.

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 August's survey available for review here.

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