Global Supply Chain Spare Capacity Rises Amidst Economic Weakness

The GEP Global Supply Chain Volatility Index, a leading indicator tracking demand conditions, shortages, transportation costs, inventories, and backlogs, has decreased to -0.43 in September, its lowest level in 14 months. This indicates the greatest level of global supply chain spare capacity since July 2023, signaling a further deterioration in global demand.


The rise in underutilized vendor capacity was driven by a decline in global demand for raw materials, commodities, and other intermediate goods. Factory purchasing activity in all major continents weakened in September, reflecting a stronger downturn in procurement activity across many global economies. Notably, supplier spare capacity in North America and Europe increased significantly, with the U.S. market driving the trend in North America.


The intensifying global economic weakness is evident in the slowdown of major economies. North America's factory purchasing activity deteriorated more quickly in September, with demand at its weakest year-to-date, signaling a quickly slowing U.S. economy. In Asia, factory procurement activity in China fell for a third straight month, and Typhoon Yagi hit vendors feeding Southeast Asian markets like Vietnam. Europe's industrial recession deepened, leading to an even larger increase in supplier spare capacity.

"September is the fourth straight month of declining demand and the third month running that the world's supply chains have spare capacity, as manufacturing becomes an increasing drag on the major economies," explained Jagadish Turimella, president of GEP. "With the potential of a widening war in the Middle East impacting oil, and the possibility of more tariffs and trade barriers in the new year, manufacturers should prioritize agility and resilience in their procurement and supply chains."

As the global economy continues to grapple with headwinds, the increase in supply chain spare capacity underscores the need for manufacturers to adapt and innovate to navigate the challenging economic landscape.