The GEP Global Supply Chain Volatility Index fell to -0.37 in August. This is its lowest level year-to-date (vs. -0.22 in July), signaling the highest level of spare capacity at global suppliers in 2024. This marked two successive months of underutilized capacity across the world's supply chains, and the lowest level of input demand in eight months, as global economic conditions deteriorate.
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 U.S., recorded lower purchasing activity in August, as a result of months of below-average demand, highlighting a diminished near-term outlook.
"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," explained Neha Shah, president, GEP. "To head off a material slowdown in the second half of the year, manufacturers need to see interest rates lowered, and for the U.S., China and the EU to avoid raising tariffs and trade barriers."
Key Takeaways:
- For the first time since March, the 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 and even worsened further, with the continent's big-two economies, Germany and France, spearheading manufacturing weakness. In contrast to the continent, U.K. manufacturers are close to full utilization.
- 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.
- 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.
- 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.
- Reports of manufacturers' backlogs because of insufficient staffing capacity were muted in August, holding close to their long-term trend level. This indicates that labor supply is generally capable of meeting demand.
- After having risen in recent months and reaching 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.
