Chemical Activity Barometer Rises Again

The Chemical Activity Barometer rose 0.5% in July on a three-month moving average (3MMA) basis following a 0.8% gain in June

3 Min Read
Image courtesy of American Chemistry Council

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), rose 0.5% in July on a three-month moving average (3MMA) basis following a 0.8% gain in June. On a year-over-year (Y/Y) basis, the barometer rose 16.3% in July (3MMA).

The unadjusted data show a 0.1% advance in July, a slowdown from a 0.3% rise in June and 1% gain in May. The diffusion index reached 88% in July. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for June was revised upward by 0.14 points and the reading for May was revised downward by 0.34 points. Monthly revisions have generally been positive during the past year. The July data are provisional and subject to revision.

“The latest CAB reading is consistent with expansion of commerce, trade, and industry, but growth has peaked,” said Kevin Swift, chief economist at ACC.

The CAB has four main components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; 4) inventories and other indicators.

In July, production-related indicators were up. Trends in construction-related resins and related performance chemistry were solid and suggest an improving housing market. Resins and chemistry used in other durable goods were strong. Plastic resins used in packaging and for consumer and institutional applications showed firm growth. Performance chemistry for industry was largely positive. Exports grew, reflecting improvement in overseas markets. Equity prices improved, while product and input prices continued to expand, indicating tightness of key markets. Inventory and other supply chain indicators were positive.

The CAB is a leading economic indicator derived from a composite index of chemical industry activity. Due to its early position in the supply chain, chemical industry activity has been found to consistently lead the U.S. economy’s business cycle, and the barometer can be used to determine turning points and likely trends in the broader economy. Month-to-month movements can be volatile, so a three-month moving average of the CAB reading is provided. This provides a more consistent and illustrative picture of national economic trends.

Applying the CAB back to 1912, 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.

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 reflecting activity data for the current month, as well as a three-month moving average. The CAB was developed by the Economics Department at ACC.

Current-month, unadjusted readings of the CAB are based on high-frequency weekly and daily data. For example, the ACC uses equity data as of the Thursday before the release date. Using mid-month data can lead to large revisions if conditions appreciably change in the second half of the month. The ACC has moved the release dates for the CAB to the last Tuesday of each month, hoping it will minimize the revisions.

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Powder Bulk Solids Staff

Established in 1983, Powder & Bulk Solids (PBS) serves industries that process, handle, and package dry particulate matter, including the food, chemical, and pharmaceutical markets.

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