A Tough Winter for Chemical Industry

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), was flat in March following a 0.3% and 0.1% upward revision in January and February, respectively. Data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 3.0% over this time last year, a slight deceleration over prior year-over-year growth.

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 March, the components were mixed, with production and inventories up, and equity and product prices slightly down.

“Economic data for recent months are likely slightly skewed by seasonal factors, including the unusual deep freeze that engulfed a good part of the country. The housing sector was particularly adversely affected by weather,” said Kevin Swift, chief economist at the American Chemistry Council. Each housing start represents approximately $15,000 of chemistry, Swift noted. “March is returning to normal, but it may take a few more weeks before the data reflect a real normalcy, but we know with certainty that U.S. chemical exports are softening as a result of the strong dollar,” he added.

The Chemical Activity Barometer is a leading economic indicator derived from a composite index of chemical industry activity. The chemical industry has been found to consistently lead the USeconomy'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 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 2007 was used) of a reference time series. The latter is the Federal Reserve's Industrial Production Index.