Reply To: New York Fed Index Shows Global Supply Chain Pressures Decreased in August


Supply chain pressures ‘tentatively’ easing, says Bank of America

The omicron variant added renewed stress to global supply chains through the busy holiday season, but signs of improvement in the US and Europe indicate the bottlenecks may soon be past their peaks, according to Bank of America.

The two measures remain well above historical averages, with each registering a reading above 60 points, where any figure higher than 50 marks an increase, although the slight fall marks a healthy deterioration, according to Bank of America analysts.

“We are starting to see some signs of being past the peak in supply disruptions in the US,” said Ruben Segura-Cayuela, an economist with Bank of America, who described the improvements as “still very tentative” but beginning to form a positive trend. “The direction of movement is encouraging.”

Towards the end of 2021, supply chains began to heal from the initial turbulence of the pandemic before the omicron variant swept the globe, reigniting many of the pressures that have led to slowdowns, including factory closures and difficulty hiring new staff.

“Bottlenecks and broader disruptions dominated global supply chains [through the back half of last year], with significant implications for manufacturing activity levels and goods price inflation,” Mr Segura-Cayuela said.

“The timing of their unwinding is hence crucial for activity and price pressure normalisation.”

While the US begins to indicate an easing of supply chain pressures, the stress in Europe “appears to be peaking, but there is no sign of a clear turnaround yet,” Mr Segura-Cayuela said.

Part of the reason Europe faces ongoing pain is because of high energy costs, given “energy-related disruptions to supply remained high at the end of last year, keeping the supply disruption proxy very close to the 2021 peaks,” he said.

“But market prices for energy have moved lower since December, especially Euro area natural gas and wholesale electricity,” which Bank of America believes will help ease supply chain pressures.

“Given the relatively fast pass-through of market prices to corporate sector energy bills, we are somewhat hopeful that Euro area bottleneck signals will follow the US soon.”