Supply chain disruptions continue to be a major challenge as the global economy recovers from the COVID-19 pandemic. In a January article, we introduced the Global Supply Chain Pressure Index (GSCPI) as a parsimonious global measure that encompasses several indicators used to capture supply chain disruptions. The main objective of this article is to provide an update of the GSCPI up to February 2022. In addition, we use the underlying index data to discuss the drivers of recent movements in the GSCPI. Finally, this data is used to create country-specific supply chain pressure indices.
The chart below shows the GSCPI through February 2022, and it indicates an easing of pressures on the global supply chain since December 2021, although they remain at historically high levels (download data).
As Global Supply Chain Pressures Ease, Pressure Remains Elevated
To see what has driven this recent easing of pressure on the supply chain, it may help to summarize how the GSCPI is constructed. As detailed in our original article, the GSCPI is based on two sets of data. Global freight costs are measured using sea freight cost data, for which we use data from the Baltic Dry Index (BDI) and the Harpex Index, as well as the BLS Air Freight Cost Indices for cargo flights between Asia, Europe and the United States. . We also use three supply chain-related components – “lead times”, “order books” and “inventory purchased” – from the Purchasing Managers Index (PMI) surveys for manufacturing companies in seven interconnected economies: China, the euro zone, Japan. , South Korea, Taiwan, United Kingdom and United States.
Before combining them in the GSCPI using principal component analysis, we remove demand effects from the underlying data series by projecting the PMI supply chain components onto the new orders component of the surveys. corresponding PMIs and, in the same vein, we do so for the measures of global transportation costs which are projected onto the GDP-weighted “new orders” and “purchased inputs” components in the seven PMI surveys. This attempt to isolate movements on the supply side is very reminiscent of similar approaches that have been proposed by the International Monetary Fund (see the latest World Economic Outlook, page 47) and the Bank of England (see the Monetary Policy Report, page 28), although we leverage more information by allowing links between countries and including various measures of transport costs.
So what has been driving the easing of pressures on the global supply chain seen since December? In the following chart, we focus on the decline between January and February. Each column represents the contribution in standard deviation of each component of our index to its overall variation. Note that the decrease in supply chain pressures has been generalized across the various components, which is a welcome development in terms of reducing global supply chain disruptions.
Most GSCPI components decreased in February 2022
The attentive reader may have noticed some numerical differences between the current version of the IPSGC and those published previously. Although we build the GSCPI between 1997 and present, we noted in our original article that some of our underlying data starts after 1997, while other series are published with a month lag. Therefore, we have data gaps both at the beginning of the sample and at the end. We take this into account when estimating the common component across the series by means of principal component analysis and, in the process, we impute estimated values to these data gaps, as Stock and Watson suggest. (2002). Therefore, the GSCPI levels for the most recent months may be revised as realized data becomes available and supersedes these imputed values. In addition, for some of the series, primarily the BLS Air Freight Cost Indices, each new release comes with revisions for up to twelve months of previous data. The table below compares the current version of the GSCPI with the three previous versions, and it shows that the revisions can have an impact up to one year back. The chart further shows that the current GSCPI vintage suggests that pressures on the global supply chain peaked in December, while the previous vintage had pressures peaking in November. Both vintages suggest that 2022, at least through February, has seen a decrease in global supply chain disruptions.
Revised and completed data may alter previous supply chain pressure readings
Country-specific supply pressure indices
Our GSCPI dataset includes PMI data for seven countries: China, Eurozone, Japan, Korea, Taiwan, UK and US. We can use this data in conjunction with our global transportation metrics to assess supply chain pressures in these economies. This involves taking the ‘delivery time’, ‘arrears’ and ‘inventory purchased’ components of a specific country’s PMI survey and adding the transport cost measures, transformed into local currency terms. Compared to these transport cost series, shipping cost proxies are global and therefore always taken into account for a country, whereas only relevant regional measures of air freight cost are used, i.e. say the cost of air freight between the United States and Asia for China, Japan, South Korea and Taiwan, the cost of air freight between the United States and Europe for the Eurozone and the United United, and all air freight cost metrics for the United States
We therefore have six series per country, except for the United States where we have seven. In the same vein as in the case of the GSCPI, we use regressions based on the PMI demand proxies and their lags to clean up as much as possible each country’s data set of demand effects. The cleaned series are then included in a country-level principal component analysis, where for each country a common component is estimated while data gaps are simultaneously imputed with preliminary estimates.
In the two graphs below, we plot our indices constructed for our seven economies. The first chart illustrates our country-specific supply chain proxies for Eurozone, Japan, UK, and US. Supply chain pressures have reached new heights in recent months for these economies, but have begun to ease as we approach 2022. South Korea and Taiwan, as seen in the second chart below , we are also seeing some easing of supply chain pressures in February after reaching new highs following COVID-related lockdowns in the region, with China lagging somewhat behind the South. Korea and Taiwan.
Local supply chain strain indices remain above average levels for advanced economies
Local supply chain pressure begins to ease in emerging markets
We note that while there are co-movements between regional indices, idiosyncratic fluctuations in these measures occur, reflecting country-specific factors. For example, we see an increase in the Chinese index during the so-called trade war tensions with the United States. Interestingly, the post-Brexit period does not appear to have resulted in a noticeable increase in the UK pressure index. A notable caveat with these country-specific indices is that they can be noisier and therefore less accurate in measuring supply chain pressures than the GSCPI, because they are based on a smaller set of inputs that limit the ability to “diversify” noisy characteristics in the underlying data and they ignore the country-to-country linkages that are central to supply chain connections between manufacturing firms.
In this article, we provide an update to the GSCPI and introduce proxies for country-specific supply chain pressures. Overall, we note that supply chain pressures have moderated from the peak reached in December 2021, but these pressures remained at historically high levels through February. Going forward, it is possible that the current heightened geopolitical tensions will lead to higher pressures on the supply chain in the near future.
Gianluca Benigno is Assistant Vice President of the Research and Statistics Group at the Federal Reserve Bank of New York.
Julian di Giovanni is Assistant Vice President of the Bank’s Research and Statistics Group.
Jan Groen is a research fellow in the Bank’s Research and Statistics Group.
Adam Noble is a Principal Research Analyst in the Bank’s Research and Statistics Group
How to cite this article:
Gianluca Benigno, Julian Di Giovanni, Jan Groen and Adam Noble, “Global Supply Chain Pressure Index: March 2022 Update”, Federal Reserve Bank of New York Economy of Liberty StreetMarch 3, 2022, https://libertystreeteconomics.newyorkfed.org/2022/03/global-supply-chain-pressure-index-march-2022-update.
The opinions expressed in this article are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.