US chemical activity index continues upward climb

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), increased by 0.1% in July, the trade group announced on Tuesday. 

This follows consecutive monthly gains during the second quarter, despite downward revisions in May and June. Data is measured on a three-month moving average (3MMA). 

Accounting for adjustments, the CAB remains up 2.1% over this time last year, a slight deceleration of annual growth as compared to this time last year.

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 July, chemical equity prices were down, while product prices and production were flat, and inventories continued to improve.

The CAB is a leading economic indicator derived from a composite index of chemical industry activity, the ACC says. 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 lead of two to 14 months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.

“A number of trends remain evident as we head into the second-half of the year,” said ACC chief economist Kevin Swift. “There was upward momentum in plastic resins used in light vehicles, which are on track for a very good sales year, but we also continue to see declines in oilfield chemicals and US exports overall, largely as a result of softer oil prices and a strong US dollar,” Swift said. 

“Despite these modest headwinds, the Chemical Activity Barometer is still signaling slow, albeit potentially accelerating, gains in business activity into the early part of 2016,” he added.