New York Fed Index Shows Global Supply Chain Pressures May Have Peaked

The New York Federal Reserve released a new Index, The Global Supply Chain Pressure Index (GSCPI). The NY Fed concluded that global supply chain pressures may have peaked and might start to moderate somewhat going forward. The index uses 27 variables that are meant to capture factors that put pressure on the global supply chain, both domestically and internationally.

GSCPI twenty-seven variables:

The 27 variables include shipping rates and air freight costs between the United States, Asia and Europe.

  • The three country-specific supply chain variables for each of the economies in our sample (the euro area, China, Japan, South Korea, Taiwan, the U.K., and the U.S.),
  • The two global shipping rates, and the four price indices summarizing airfreight costs between the U.S., Asia, and Europe.
  • All these variables are corrected for demand effects to the greatest possible extent, as described previously.

The first set of indicators focus on cross-border transportation costs.

1. The Baltic Dry Index (BDI), which tracks the cost of shipping raw materials, such as coal or steel.

2. The Harpex index, which tracks container shipping rate changes in the charter market for eight classes of all-container ships.

3. U.S. Bureau of Labor Statistics (BLS) constructs price indices that measure the cost of air transportation of freight to and from the U.S. They use the outbound and inbound airfreight price indices for air transport to and from Asia and Europe.

We show our measures of transportation costs in the two charts below. In the first chart, we notice that both shipping cost indices have witnessed enormous growth since the beginning of the global recovery from the troughs of the COVID-19 pandemic, although the BDI has begun to slow in recent months. It is interesting to note that the Harpex measure increased considerably more than it did during the recovery from the Global Financial Crisis (GFC), while the rise of the BDI has been on par with that of the GFC period. The second chart below plots the inbound and outbound costs of airfreight for the U.S. and Asia and for the U.S. and Europe. Airfreight costs from Asia and Europe to the U.S. accelerated especially sharply in 2020, as airlines dramatically cut airfreight capacity in response to the pandemic.

The second set of indicators rely on country-level manufacturing data from Purchase Manager Index (PMI) surveys.

The NY Fed focus is on economies that have both a significant sample length and are substantially interlinked through global supply chains: the euro area, China, Japan, South Korea, Taiwan, the U.K., and the U.S.

In the chart below, we plot GDP-weighted averages of the subcomponents of our countries’ manufacturing PMIs. The measures of supply bottlenecks have risen dramatically during the recent recovery period, and this rise has been most notable for the “delivery time” subcomponent of the PMIs across our seven economies.

Sources: Harper Petersen Holding GmbH; Baltic Exchange; Bloomberg L.P.; Haver Analytics.

Notes: Each subcomponent is constructed by aggregating subcomponents for the U.S., the U.K., the Euro Area, China, Taiwan, South Korea, and Japan via GDP weights. The “delivery times” PMI subcomponent has been inverted such that readings above 50 indicate longer delivery times.

This data set is made up of monthly time series of uneven length: the advanced economies’ supply chain variables all start in 1997, for Japan they start in 2001 and for the other Asian economies 2004, the Harpex index starts in 2001, the BDI goes back to 1985 and the BLS airfreight price indices go back to 2005 on a monthly frequency and are quarterly from 2005 to 1997.

Our aim is to estimate a common, or “global,” component from these time series. To be able to do that while also dealing with data gaps, we follow Stock and Watson (2002) and extract this common component for the 1997-2021 period through a principal component analysis while simultaneously filling the data gaps using this estimated common component.

Source: Gianluca Benigno, Julian di Giovanni, Jan J. J. Groen, and Adam I. Noble, “A New Barometer of Global Supply Chain Pressures” Federal Reserve Bank of New York Liberty Street Economics, January 4, 2022,

From The TradersCommunity News Desk