NY Fed Says Supply Chain Disruptions Are Still a Concern

It has taken economists a while to come to better grips with something experts in supply chain management have known for decades: unavailability of products can shake the global economy and send prices rising. Supply disruptions are a quick way to find out.

Supply chains were a major cause of product unavailability during the pandemic. This was clear even in February 2020 as Fortune reported a Dun & Bradstreet analysis that 163 of the Fortune 1000 had tier 1 suppliers in China’s Covid ground zero. And 938 of them had a tier 2 supplier in the same region.

The impact was difficult for most economists to recognize as they typically look at excess demand as the reason for price triggers. But if supply chains bog down, manufacturers can’t make products, also producing inadequate product availability. (More lately, corporate profits have stepped up as another reason for inflation, showing that Economics 101 is sometimes too simple to be accurate.)

The Federal Reserve Bank of New York’s blog on Monday explored how supply chains, thought by many to have been fixed, aren’t on fully solid ground. They looked at “new measures of supply availability from our Business Leaders Survey and Empire State Manufacturing Survey that closely track the New York Fed’s Global Supply Chain Pressure Index (GSCPI).”

The surveys show that in the multi-state region that the New York Fed serves, between a third and a half of businesses say they are having trouble getting supplies. Although not at the level of the pandemic height, many of those companies are “reducing operations and raising prices to compensate.”

“We calculate our new supply availability indexes (SAIs) as the share reporting that supply availability improved over the month minus the share that report supply availability worsened,” they write. The results are similar to the NY Fed’s Global Supply Chain Pressure Index, which uses a lot of international data to look at potential supply chain disruptions around the world.

That the two are similar isn’t surprising. Sourcing components, materials, and full products is a global undertaking. If there are disruptions around the world, there will be end point impacts for U.S. manufacturers within a region.

The NY Fed said that since early 2023, the indexes suggested an improving global supply infrastructure. Only the last couple of months have “Notably, the three supply indexes have generally been above zero since early 2023, suggesting that supply availability has been improving for roughly the last year and a half, a period during which inflationary pressures moderated.

However, the last couple of months have shown signs that supply chain improvement has stalled. “This trend is concerning as supplemental questions posed to businesses in the May survey indicate that supply disruptions remain significant for many firms in the region,” they wrote. “Indeed, the recent lack of improvement in supply availability has occurred as inflation showed some stickiness.”

A quarter of service firms and almost 40% of manufacturers in the region have raised their prices as a result. That, the NY Fed said, is “troubling … when inflation remains above the Federal Reserve’s inflation goal.” Another way of saying that higher for longer becomes more likely.