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NY Fed Develops New Index to Measure Global Supply Chain Pressure

A group of New York Fed researchers has developed a new index to measure the critical factors underlying all global economic activity-supply chains.

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As the world enters uncharted territory with the global pandemic, sudden rise of new variants, widespread uncertainty, and country-wide shutdowns, a group of New York Fed researchers has developed a new index to measure the critical factors underlying all global economic activity—supply chains.

The record-high supply chain pressures that have led to high prices, product shortages, and four-decade-high inflation in the United States may have begun the process of easing down, according to the new Global Supply Chain Pressure Index (GSCPI) released by Gianluca Benigno, Julian di Giovanni, Jan J. J. Groen, and Adam I. Noble.

Measuring 27 variables, mostly extracted from available data since 1997, the GSCPI "seems to suggest that global supply chain pressures, while still historically high, have peaked and might start to moderate somewhat going forward," according to a blog post written by the research team.

According to the GSCPI, the graph peaked after the discovery of the CCP (Chinese Communist Party) virus, which causes COVID-19, and settled down to normal levels by summer 2020 before peaking again at the end of the year, owing to a rise in infections. The trajectory has since been sustained, but the rate of increase is gradually slowing down.

The GSCPI takes into consideration three country-specific supply chain variables for advanced economies of the euro area, China, Japan, South Korea, Taiwan, the UK, and the United States that are interlinked through global supply chains and have a significant data sample length.

For the remaining six variables included within GSCPI, two are global shipping rates, and four are price indices summarizing airfreight costs between the United States, Asia, and Europe.

The COVID-19 pandemic set in motion a series of events that led to global supply chain disruptions. Situations like a factory shutting down in an infection zone in China, ships not allowed to disembark because they carry crew who have not undergone country-specific testing, or transportation employees not reporting for work due to vaccine mandates have presented unique challenges for global logistics.

Researchers claimed that current indexes measure global supply chain "pressure" by focusing on singular variables that cannot provide a proper perspective into the entire chain, leading them to propose the GSCPI.

The GSCPI coalesces data from several indexes like the Baltic Dry Index that tracks the cost of shipping raw materials, the U.S. Bureau of Labor Statistics that measures air freight charges in and out of the country, and country-level manufacturing data from the Purchase Manager Index (PMI) surveys.

Delivery times for the material to reach manufacturing facilities can be calculated from the PMI surveys that can quantify work backlogs. By combining all factors from the different indices, including costs, the GSCPI aims to gauge the current pressure on global transportation.

However, the index has not taken in measurements resulting from the fallout of Omicron. Rules around the highly-transmissible variant have caused many employees to remain working at home and the infected to stay quarantined, resulting in labor shortages.

In an update to the index, the Fed team is planning on quantifying the impact of shocks to movements in producer and consumer prices, which have been considerably higher in recent times compared to previous years.

By Naveen Athrappully

Naveen Athrappully is a news reporter covering business and world events at The Epoch Times.

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