Supply chain disruptions are starting to ease, according to Yardeni Research

On Thursday, we learned the Fed's preferred inflation measure — Core PCE — moderated in May, rising 4.7% over the previous moth and marking the third-straight month of moderate price pressures.

The much-maligned global supply chain is beginning to show signs of operating more smoothly, and investors will be watching for signs of this trend continuing or reversed in the coming months.

Lieferant delivery times, which hit their longest points on record last fall, are one of the most intuitive measures of supply chain health.

In June, we learned that manufacturers delivery times in the New York Fed and Philadelphia Fed regions had gotten significantly shorter during the month.

Since then, we have learned from the Kansas City Fed and Richmond Fed that delivery times have also improved in their regions. Delivery times in the Dallas Fed region got worse.

According to Ed Yardeni of Yardeni Research, a composite index contains delivery times and order backlogs, a good proxy for supply chain delays from the five regional Fed banks. Yardeni has found these pressures to be beginning to be lessened when looked at holistically.

In June's surveys of five of the 12 district Federal Reserve Banks showed that supply-chain disruptions have eased significantly in the past few months, Yardeni wrote on LinkedIn.

This is a big deal because supplier delivery times have a tight relationship with inflation rates.

The question is whether the drop in regional indexes tracking unfilled orders and delivery times during the first half of the year reflect more ample supplies or diminishing demand, Yardeni noted.

Yardeni argues that if demand is a factor in the decline, then prices should be falling sharply.

That hasn't been the case so far.

He said that it's a puzzle that will be solved in the second half of this year.

In hindsight, it would be nice to learn that falling supplier delivery times were largely driven by a faster than expected recovery on the supply side of the equation, rather than a deterioration on the demand side.

It is encouraging to see that these key supply chain metrics are improving.

It only matters in the current economy if it leads to clear and convincing evidence that inflation is cooling down.

As Fed Chair Jerome Powell said this week, there is no guarantee that a bad outcome for the US economy can be avoided.