NY Fed Develops New Index to Measure Global Supply Chain Pressure

With the world entering uncharted territory due to the global pandemic, a sudden rise in new variables, widespread uncertainty, and a nationwide shutdown, a group of federal researchers in New York has developed a new index to measure the critical factors behind all global economic activity – supply chains.

The record supply chain pressures that drove price hikes, product shortages and high inflation four decades ago in the United States may be starting to ease, according to the new Global Supply Chain Stress Index (GSCPI) by Gianluca Benigno, Julian Di Giovanni and Jan J. Gruen. , and Adam I Noble.

Measuring 27 variables, most of which have been drawn from available data since 1997, the GSCPI “appears to indicate that global supply chain stresses, while still historically high, have peaked and may begin to moderate somewhat in the future,” according to a blog post. Written by research team.

According to GSCPI, the graph peaked after the discovery of the CCP (Chinese Communist Party) virus, which causes COVID-19, and stabilized to normal levels by summer 2020 before peaking again at the end of the year, due to the spike. in infections. The path has continued since then, but the rate of increase is gradually slowing.

GSCPI considers three country-specific supply chain variables for the advanced economies of the eurozone, China, Japan, South Korea, Taiwan, the United Kingdom, and the United States that are interconnected through global supply chains and have a large data sample.

For the remaining six variables included in the GSCPI, two of them are global freight rates, and four are price indices that summarize air freight costs between the United States, Asia, and Europe.

The COVID-19 pandemic has unleashed a chain of events that has led to global supply chain disruptions. Situations such as the shutdown of a factory in a contagion zone in China, ships that were not allowed to disembark because they were carrying crews who did not undergo country-specific testing, or transport personnel who do not report for work due to vaccine mandates, have posed unique challenges to global logistics.

The researchers claimed that current indicators measure global supply chain “stress” by focusing on individual variables that cannot provide an adequate perspective to the entire chain, leading them to propose the GSCPI.

GSCPI aggregates data from several indicators such as the Baltic Dry Index which tracks the cost of shipping raw materials, the US Bureau of Labor Statistics which measures air freight charges in and out of a state, and state-level manufacturing data from Purchasing Manager’s Index (PMI) surveys.

The delivery times of materials arriving at manufacturing facilities can be calculated from PMI surveys that can determine the backlog. By combining all factors from different indicators, including costs, GSCPI aims to measure the current pressure on global transportation.

However, the indicator did not take the measurements generated by the Omicron fallout. Rules regarding the highly transmissible variant caused many employees to stay at home and those infected to be kept in quarantine, resulting in labor shortages.

In an update to the index, the Fed’s team plans to estimate the impact of the shocks on producer and consumer price movements, which have been much higher recently than in previous years.

By Naveen Atrapoli

Naveen Athrapouli is a news reporter covering business and world events for The Epoch Times.

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