US chemical activity barometer expands in March
3/22/2016 12:00:00 AM
The chemical activity barometer (CAB), a leading US economic indicator created by the American Chemistry Council (ACC), expanded 0.1% in March following a revised 0.2% decline in February and 0.1% downward revision in January, the trade group announced on Tuesday.
All data is measured on a three-month moving average (3MMA).
Accounting for adjustments, the CAB remains up 1.5% over this time last year, a marked deceleration of activity from one year ago when the barometer logged a 2.7% year-over-year gain from 2014. On an unadjusted basis, the CAB jumped 0.9%, thus ending three consecutive monthly declines.
The CAB 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.
In March, production-related indicators were better, with improvement in plastic resins used in packaging and strengthening construction-related resins, pigments and related performance chemistry. Equity prices significantly gained in March, joined by a firming in product prices.
Inventories were negative, but new orders appear to be steadying and turning around.
The CAB 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, the ACC says.
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 re-based 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.
The CAB comprises indicators relating to the production of chlorine and other alkalies, pigments, plastic resins and other selected basic industrial chemicals; chemical company stock data; hours worked in chemicals; publicly sourced, chemical price information; end-use (or customer) industry sales-to-inventories; and several broader leading economic measures (building permits and new orders). Each month, ACC provides a barometer number, which reflects activity data for the current month, as well as a three-month moving average. The CAB was developed by the economics department at the American Chemistry Council.
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