US chemical activity barometer continues uptrend

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), continued its upward growth in June, with a 0.5% gain from May. 

Measured on a three-month moving average (3MMA), the CAB’s 0.5% gain beat the average first quarter monthly gains of 0.3%, according to new figures released Tuesday by the ACC. 

Though the pace of growth has slowed significantly, gains in June have brought the CAB up a solid 4.3% over this time last year.

“Overall, we are seeing signs of continued growth in the USeconomy, and trends in construction-related chemistry show a market which has not yet reached its full potential,” said Dr. Kevin Swift, chief economist at the ACC. “However, unrest in Iraq is already affecting chemical equity prices, and the potential for an energy price shock is worrying,” he added.

The Chemical Activity Barometer has four primary components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; and 4) inventories and other indicators. During June, the components were mixed, with production flat, equity prices down, and product prices and inventories up. 

Though the production indicator was flat in June, plastic resins used in consumer and institutional applications were stronger, volumes of performance chemistry used in industry were better, and US exports are growing. Continued strength in electronic chemicals is encouraging, as the semiconductor industry’s early place in the supply chain makes it a bellwether of the industrial cycle. 

Gains in oilfield chemicals suggest that the boom in unconventional oil and gas will continue to progress, contributing to the overall growth of the US economy. Additionally, of the 28 specialty chemical sectors monitored, most are expanding, with particular strength shown in nearly half. 

The Chemical Activity Barometer is a leading economic indicator derived from a composite index of chemical industry activity. The chemical industry has been found to consistently lead the US economy’s business cycle given its early position in the supply chain, and this barometer can be used to determine turning points and likely trends in the wider economy. 

Month-to-month movements can be volatile so a three-month moving average of the barometer is provided. This provides a more consistent and illustrative picture of national economic trends.

Applying the CAB back to 1919, it has been shown to provide a longer lead (or perform better) than the National Bureau of Economic Research, by two to 14 months, with an average lead of eight months at cycle peaks.