GEP index: supply chains had spare capacity in July

Spare capacity in worldwide supply chains rose in July for the first time since April, falling to a four-month low according to a report from the business software vendor GEP.

The underutilized capacity was measured through a study of demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses in 40 countries. Produced monthly by the Clark, New Jersey-based company, the “GEP Global Supply Chain Volatility Index” found that conditions varied by geography.

The greatest level of slack in supply chains was in Europe, which continues to grapple with recession conditions in its manufacturing sector, especially in Germany. Asia growth also cooled as factory demand in the region contracted to its weakest since December 2023. Underlying data revealed a decrease in purchasing activity by Chinese factories — the first time this has occurred in nine months. Japan's manufacturing sector was also a source of weakness.

Suppliers to North American companies reported slightly underutilized capacity during July, as was the case in June. Slowing purchasing activity was seen across all three countries within the region, with Canada reporting the steepest contraction. Notably, Mexican factories, which have been a driver of growth in the region this year, reported lower input demand for the first time since October 2023.

"In July, purchasing activity by global manufacturers declined, indicating that economic growth is slowing, adding to the calls for the Federal Reserve to lower interest rates sooner rather than later," Mike Jette, vice president, consulting, GEP, said in a release. "This is not alarming data. The world's supply chains continue to operate efficiently, with no sign of stockpiling, shortages, or price pressures. But to head off any material slowdown in the second half of the year, manufacturers do need demand to increase."