Supply Chain Capacity Underutilized — Evening Brief – 09.11.24
August marked two consecutive months of underutilized capacity across the world’s supply chains, as well as the lowest level of input demand in eight months, as global economic conditions worsened, according to an index produced by S&P Global and GEP, a procurement and supply chain software provider.
The GEP Global Supply Chain Volatility Index decreased to -0.37 in August, the lowest level year-to-date, from -0.22 in July, indicating the largest amount of spare capacity among global suppliers this year.
The index tracks demand conditions, shortages, transportation costs, inventories and backlogs based on a monthly survey of 27,000 businesses.
GEP reported that suppliers worldwide saw a slowdown in activity throughout August. North American conditions were the weakest, with vendors utilized by manufacturers posting the “greatest level of unused capacity since June 2023,” at -0.62 from -0.11 in July. Factories in all three of the continent’s economies, but particularly in the U.S., reported weaker purchasing activity in August due to months of below-average demand.
Asian suppliers, who saw growth in the first half of 2024, reported spare capacity as Chinese procurement declined. The index fell to -0.07, from 0.07, signaling underutilized capacity for the first time in five months.
According to GEP, the manufacturing recession in Europe intensified in August, with Germany and France being the primary contributors to the continent’s decline. The index experienced a decline to –0.53 from -0.49. In contrast to the EU, UK manufacturers are nearly at maximum capacity.
On the demand side, global demand for raw materials, commodities and other necessary components like semiconductors fell in August at an “accelerated pace” that was the strongest year-to-date, GEP reported.
“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.”
The Index is based on S&P Global’s PMI surveys. A value greater than zero implies that supply chain capacity is being stretched and volatility is increasing. The further above zero, the greater the capacity is being stretched. A value below zero indicates that supply chain capacity is being underutilized, reducing volatility. The further below zero, the greater the capacity is being underutilized.