The demand for raw materials and components weakened sharply in Europe and North America in June, indicating greater risk to the economy heading into the second half of 2023, according to an analysis by supply chain software provider GEP.
That finding comes from the New Jersey firm’s “GEP Global Supply Chain Volatility Index,” a leading indicator tracking demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses in over 40 countries. Combined into a weighted index number, a value above 0 indicates that supply chain capacity is being stretched and supply chain volatility is increasing, while a value below 0 indicates that supply chain capacity is being underutilized.
For June, that index recorded -0.26, compared to -0.28 in May, marking a third successive month of excess global supplier capacity. Today's figure highlights the complete reversal in global supply chain frictions compared to a year ago, when GEP's index stood at 3.53.
"Weakening demand for components and raw materials in the Western economies, low levels of inventory, and excess global supplier capacity suggest that storm clouds are gathering,” Joel Johnson, vice president, supply chain consulting, GEP, said in a release. “The softening of demand in the manufacturing sector in the last few months is a leading indicator that the broader economy in the Western hemisphere will slow in the second half of 2023. It's a perfect time for companies' procurement to re-negotiate terms for 2024 and 2025 with suppliers.”
GEP’s survey found a worsening of global demand for raw materials, commodities, and components in June, specifically in Europe and North America. That trend could signal a deteriorated outlook for manufacturing as borrowing costs rise, and has already led to excess capacity at suppliers.
However, the news was better in other regions, as input demand in Asia is showing greater resilience. Purchasing activity across that region is broadly tracking in line with its historical average, with pockets of strength in some Eastern markets led by India, one of the fastest-growing major economies so far in 2023.