The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), logged a 0.2 percent gain in November, following an upward revision in October which reflected zero growth, as measured on a three-month moving average (3MMA). The year-over-year comparisons have moderated since the summer suggesting an economy continuing to face headwinds and modest gains. The CAB remains up 3.7 percent over this time last year.
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. During November, the components were mixed, with production flat, equity prices up, production down, and inventories continuing to improve.
Production-related indicators were mixed in November. The recent housing report showed recovery, but recent trends in construction-related plastic resins, pigments and other performance chemistry suggest a sluggish housing recovery, influenced by factors including shifting preferences, weak finances among first-time homebuyers, and lingering restraints in mortgage underwriting standards. Plastic resins used in consumer and institutional applications were also mixed. October retail sales rebounded from the first decline in a year with broad-based gains across nearly all segments; however, consumer debt lingers at record high levels. Lower gasoline prices are likely to boost confidence for consumers moving forward.
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 U.S. 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. 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 2007 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
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