Looking Back at the Supply Chain Woes

The global economy experienced significant disruptions in its supply chains during the pandemic.

During the supply chain woes that plagued the global economy in 2020 and 2021, the Federal Reserve Bank of New York put together what it called the Global Supply Chain Pressure Index (GSCPI). The latest version of the index both highlights the size of those disruptions and also suggests these pressures have now faded away.

Here’s the index from 1997 up through May 2023. The spikes in supply chain in spring and summer of 2020, and then again in late 2021 and into 2022, are apparent. The decline to usual levels in the last few months is also clear.

What is actually being measured here? The New York Fed explains:

The GSCPI integrates a number of commonly used metrics with the aim of providing a comprehensive summary of potential supply chain disruptions. Global transportation costs are measured by employing data from the Baltic Dry Index (BDI) and the Harpex index, as well as airfreight cost indices from the U.S. Bureau of Labor Statistics. The GSCPI also uses several supply chain-related components from Purchasing Managers’ Index (PMI) surveys, focusing on manufacturing firms across seven interconnected economies: China, the euro area, Japan, South Korea, Taiwan, the United Kingdom, and the United States.

The Fed stirs together these ingredients and gets a distribution of scores. The vertical axis of the scale is measured by standard deviations, which may not be intuitive for some readers. Here’s my off-the-cuff effort at explaining. Imagine a bell-shaped curve showing a distribution of some variable: that is, most of the scores are centered around the middle, with many fewer scores on the left or right tails. For a particular version of this bell-shaped curve known as a normal distribution, about two-thirds of the scores are within one standard deviation (plus or minus) of the average score; 95% of the scores are within two standard deviations; and 99.7% of the scores are within three standard deviations.

The scores on this Global Supply Chain Pressure Index are not a neat bell-shaped “normal” curve. But it’s still true that when a score gets to be three or (gulp!) four standard deviations from the mean, it’s extremely rare. In other words, those supply chain disruptions from 2020 through early 2022 were really, truly outside the experience of the previous quarter-century.