"Consistent with other recent economic reports, including the Conference Board and the Chicago Fed National Activity Index, the Chemical Activity Barometer continues to point to a slowly expanding US economy, at least through the first quarter of 2015," said Dr. Kevin Swift, chief economist at ACC. "What makes the CAB unique however, is its lead time in predicting the ebbs and flows of the economy, and the slight drag on plastic resins used in consumer and institutional applications parallels the weaker consumer confidence we are seeing," Swift added.
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. During August, the components were mixed, with production flat, equity prices and inventories up, and product prices down.
Though the production indicator was flat in August, construction-related coatings, pigments and other performance chemistries remained strong. Likewise, chemical equities outpaced the broader market this month. Commenting further on this month's reading, Swift also noted that despite renewed economic troubles in Europe, China, and Latin America, US exports are picking up with the United Kingdom and NAFTA partners.
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 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.