The Chemical Activity Barometer (CAB), an economic indicator created by the American Chemistry Council (ACC), posted a gain in February of 0.4 %, following a similar 0.4 % gain in January.
Washington/USA — In the third quarter of 2016, the indicator recorded a a steady 0.3 % gain every month during the third quarter of 2016. All data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB is now up 5.0 % over this time last year, marking its strongest year-over-year performance since September 2010. On an unadjusted basis the CAB climbed 0.1 % in February, following a 0.5 % gain in January.
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. In February all of the four core categories for the CAB improved, with the diffusion index strengthening to 71 %. Production-related indicators were positive, with the housing report indicating slipping starts, but improving permits. This was coupled with an improvement in US exports. Equity prices also improved at a robust pace, reflecting an improvement in consumer and business confidence. Overall the barometer continues to hint at gains in US business activity through the third quarter.
Implication for the Wider Economy
The Chemical Activity Barometer is an 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.
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.