USA: Chemicals Chemical Activity Barometer Tracks Second Monthly Gain in April
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.
Washington/USA – The Chemical Activity Barometer (Cab), a leading economic indicator created by the American Chemistry Council (ACC), rose 0.5 per cent in April on a three-month moving average (3MMA) basis, the second monthly gain after several weak months. On a year-over-year (Y/Y) basis, the barometer is up 0.3 per cent (3MMA).
The unadjusted measure of the Cab rose 0.8 per cent in April and 0.7 per cent in March. The diffusion index was steady at 65 per cent in April, an improvement over the winter months. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The Cab reading for March was revised upward by 0.64 points and that for February by 0.10 points.
“The latest Cab signals gains in U.S. commercial and industrial activity through mid-2019, but at a slow pace,” said Kevin Swift, chief economist at ACC. “As a result, the recovery and expansion underway is likely to surpass the record of 120 months set during the 1990s. The Cab reading suggests that there are glimmers of hope for improving activity in the closing months of the year.”
The Cab has four main components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; and 4) inventories and other indicators.
Production-related indicators in April were mixed. Trends in construction-related resins, pigments and related performance chemistry were mixed and suggest further, albeit slow, gains in housing activity. Plastic resins used in packaging and in consumer and institutional applications were slightly positive. Performance chemistry and U.S. exports were mixed. Equity prices rebounded sharply in April, while product and input prices rose. Inventory and other indicators were positive.
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 1912, it has been shown to provide a lead of two to fourteen 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, 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.
For the full data set, please visit https://www.americanchemistry.com/CAB-vs-Industrial-Production/.
The next Cab is currently planned for May 21, 2019 at 9:10 a.m. EDT.