At the top, we have a quickstart guide for reading the monitor. Below, we have an explanation of why this monitor is necessary and the role it can play in improving discussion of macroeconomic policy.
How Do I Read The Monitor?
Tables. Each thematic table – Energy, Materials, Industrials, Durables, Staples, Health Care and Tech – roughly corresponds to a two-digit sector code in the Global Industry Classification Standard (GICS). Within each table, the two-digit GICS codes are broken down into six-digit GICS codes which correspond to four-to-six-digit codes in the North American Industrial Classification System (NAICS).
Sections. Each table is broken up into two sections, one with a gray background and the other with a blue background. The section with a gray background describes the past two years, while the section with a blue background compares the past year to the year immediately prior to the pandemic.
Grey Section Columns. In the gray section, there are four groups of columns: “Shortage Reported?”, “Input Costs”, “Domestic Production” and “Nominal Imports”.
- Shortage Reported? The left column reports the number of sub-sectors within a given sector for which there have been reported shortages. The right column reports the number of months for which the shortage has been reported. Shortages are coded Red, as they represent points of supply chain stress.
- Input Costs. This column reports the annualized change in the Producer Price Index for each sector over six month, one year, and two year windows. When input costs are Increasing Faster in one sector than for the economy as a whole, the entry is coded Red to indicate supply chain stress. If input costs are Increasing Slower than the aggregate (or decreasing!), the entry is coded Green to indicate supply chain easing.
- Domestic Production. This column reports the annualized change in the Fed’s Industrial Production index for each sector over six month, one year, and two year windows. When industrial production is Increasing Faster in one sector than across the economy as a whole, the entry is coded Green to indicate supply chain easing. When industrial production is Increasing Slower than the aggregate (or decreasing!), the entry is coded Red to indicate supply chain stress.
- Nominal Imports. This column reports the annualized change in the dollar amount paid for imports produced by each sector over six month, one year, and two year windows. When nominal imports are Increasing Faster in one sector than across the economy as a whole, the entry is coded Green to indicate supply chain easing. When nominal imports are Increasing Slower than the aggregate (or decreasing!), the entry is coded Red to indicate supply chain stress.
Blue Section Columns. In the blue section, there are two groups of columns.
- Peak Pandemic Era Reported Shortages. The left column reports the peak number of sub-sectors within a given sector for which there have been reported shortages during the pandemic. The right column reports the peak number of months for which shortage had been reported during the pandemic. Peak shortages are coded Red, as they represent points of supply chain stress.
- Difference Between Past 12 Month and 2019 Averages. All three columns present the percent change between the most recent 12 month average, and the 12 month average for the 12 months immediately preceding the pandemic. From left to right, those columns correspond to: Input Costs, Nominal Imports and Domestic Production.
Why Do We Need A Macro Supply Chain Monitor?
It is not always easy to talk about what happens on “the supply side” using the language of modern macroeconomics. It’s the kind of thing that sounds simple – well, how many things are we making? – but which, on closer inspection, is intractably complex. The “supply side” is a complicated web of companies selling zillions of different things to one another, and to households. It is a dense network of countless kinds of agents, all with interrelated and conflicting goals and abilities, all of whom are subject to and interested in the effects of changes in macroeconomic policy. But the measurements used to proxy “aggregate supply” squash all of this detailed structure in order to produce a single number for policy evaluation. This leaves the entire “supply side” – which is key to understanding critical questions of decarbonization, bottleneck-driven or seller’s inflation, and economic growth more generally – completely opaque.
This “supply side” blindspot was on full display throughout the pandemic. Snarls on the “supply side” made substantial contributions to inflation on the way up, while the resolution of those snarls helped drive disinflation on the way down without requiring labor market dislocation. This left many macroeconomic models — which studiously exclude serious analysis of the supply side in order to focus on inflation and labor market dynamics alone — in a peculiar situation: they could easily give an explanation of why inflation went up during the pandemic, but they haven’t been able to explain why it has gone down since. The dynamics of bottlenecks, shortages and seller’s inflation fall outside their models. In fact, inflation has come down even as labor markets have remained tight, something which many prominent models put forward by Very Serious Macroeconomists explicitly indicated could not happen. There is clearly something going on on the supply side that these models are not capturing; that something might have consequences for where our goal of “full employment” really lies.
For the turn to Industrial Policy to be successful, we need to be able to talk about the “supply side”. For decades, the “supply side” meant tax cuts – not something that requires a disaggregated sectoral analysis of the US economy to understand or advocate for. Now, between CHIPS, the IRA, and IIJA, the Biden administration has taken the first steps towards an industrial policy approach in the US in decades. The problem is, if there is no language that makes it easy to talk about macro-sectoral changes in the US economy, there is no language to communicate successes and failures in using industrial policy to design aspects of the “supply side”. Understanding where the economy is and has been is key to understanding where it will go. A sector-level approach can provide a better real-time insight into the path and composition of the “supply side” as a whole, which can point the way to further metrics that might plausibly indicate the success or failure of industrial policy.
The goal of this public supply chain monitor is to provide a starting point for thinking through the data necessary to understand the supply side for the purposes of macroeconomic policy as well as to document the shape of the post-pandemic economy. I will be updating it once a month along with commentary on different sectors and trends as the economy continues to evolve post-pandemic.
It’s important to bear in mind that this is a monitor, not a model. The goal is to closely watch how the supply side evolves in order to identify bottlenecks and places where supply chain issues are constraining production, leading to cost-push (or sellers’) inflation. Consulting this monitor should be the first step in thinking through which bottlenecks are infringing on the economy’s productive capacity. It does not produce estimates of future quantities of any variable; it is simply a map. Dashboards like this can offer a clarity and granularity that benchmark macroeconomic models do not, and can offer a better starting point for policy analysis than complexly-calibrated predictive models.