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RSM US Supply Chain Index posted the best result in a year

by and

As much of the world eases COVID restrictions, we believe that the worst of domestic supply chain issues are in the rear-view mirror. Yet rising infections in some countries, along with geopolitical tensions, could delay a full return to normal.

The RSM US Supply Chain Index rose 21%, marking the third increase in the past four months.

After a dip in January because of the omicron variant’s spread, the U.S. supply chain improved significantly in February on the back of higher inventory levels and production outputs.

The RSM US Supply Chain Index rose 21% to 2.91 standard deviations below neutral, marking the third increase in the past four months. Since October, when the index reached a record low, the index has risen by a significant 45%.

But there are risks. The Russian invasion of Ukraine has roiled global energy and food supply chains. And renewed lockdowns in southern China, spurred by a new COVID-19 surge, will affect roughly 23% of its imports.

In addition, a major earthquake in Japan has led to factory shutdowns from companies like Toyota and Renesas Electronics. Both are large suppliers of semiconductors for the automotive industry.

When everything is added up, the expected midyear normalization of global supply chains is likely to be pushed back until later this year or next year.

RSM US Supply Chain Index

The labor question

The one component of the supply chain index that could slow the improvement is the job vacancy rate, which is a proxy for labor shortages. The vacancy rate has not declined since October as the supply of labor has remained subdued. It will take a lot more time for labor shortages to ease even after supply picks up.

But businesses are now in much better position to deal with potential supply shocks that won’t be as severe as what happened last year.

While the impact of economic sanctions against Russia on energy and food supplies has been substantial, the impact on other goods and services will be limited because Russia and Ukraine accounted only for about 2.4% of the world’s total exports, according to data from the World Bank in 2019.

Demand moderation will help to alleviate some of the pressure on inventory levels, which are not only a function of supply but also demand. At the same time, China has shown some hints that it may relax its strict zero-COVID policy.

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About Joseph Brusuelas

@JoeBrusuelas

Joe Brusuelas, “chief economist to the middle market,” is the preeminent voice championing issues and policies facing midsize companies in the United States and around the world. An award-winning economist, Brusuelas has more than 20 years’ experience analyzing U.S. monetary policy, labor markets, fiscal policy, international finance, economic indicators and the condition of the U.S. consumer.

A member of the Wall Street Journal’s forecasting panel and the UCLA Anderson School of Management's Board of Directors, Brusuelas regularly briefs members of Congress and other senior officials regarding the impacts of federal policy on the middle market and the factors by which middle market executives make business decisions. He also frequently offers his insights on the U.S., Canadian and global economies in the financial media. In 2020, he was named one of the 100 most influential economists by Richtopia. In December 2023, Brusuelas and the economics team were recognized on Bloomberg's list of Best Bond Forecasters after correctly predicting where the benchmark Treasury would end the year.

Before joining RSM in 2014, Brusuelas spent four years as a senior economist at Bloomberg L.P. and the Bloomberg Briefs newsletter group, where he co-founded the award-winning Bloomberg Economic Brief. Earlier in his career, he was a director at Moody's Analytics covering the U.S. and global economies for the Dismal Scientist website. He also served as chief economist at Merk Investments L.L.C. and chief U.S. economist at IDEAglobal.

About Tuan Nguyen

@tuannguyen0709

Tuan Nguyen is an economist at RSM US LLP who analyzes high-frequency economic data within the United States and global economies to better understand the American middle market. Tuan’s data-driven economic analysis and insights enhance the ability of middle market companies to thrive in an increasingly competitive global economy. In December 2023, Nguyen and the economics team were recognized on Bloomberg's list of Best Bond Forecasters after correctly predicting where the benchmark Treasury would end the year.

Based in New York, Tuan works closely with the firm’s cutting-edge Industry Eminence Program to help senior analysts accelerate data-driven strategies in their line of business. His areas of focus include the comprehensive measurement framework for environmental, social and governance (ESG) financial reporting, as well as trends in behavioral, labor and network economics and in industrial organizations. Before joining RSM, he was a graduate researcher, lecturer and teaching assistant for the economics department of his alma mater, Northeastern University, where he taught macroeconomics, international economics and microeconomic theory.

Nguyen holds a Ph.D. in econometrics and quantitative economics from Northeastern University and holds a bachelor of arts in economics and international affairs from the University of New Hampshire, where he graduated summa cum laude and was recognized as an outstanding economics student.

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