CAB Shows Short-Term Gains

The Chemical Activity Barometer (CAB), an economic indicator created by the American Chemistry Council (ACC), rose by 2.5 percent in August on a three-month moving average (3MMA) basis following a 3.0 percent gain in July. On a year-over-year (Y/Y) basis, the barometer was down 6.1 percent in August. 
 
The unadjusted data show a 1.8 percent gain in August following a 1.5 percent gain in July and a 4.1 percent gain in June. The diffusion index rose from 41 percent to 59 percent this month – the first time since January that it has been above 50 percent. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for July was revised upward by 1.08 points and that for June was revised upward by 0.77 points.
 
“With four consecutive months of gains, the latest CAB reading is consistent with recovery in the U.S. economy, which is likely to be slow,” said Kevin Swift, chief economist at ACC. “The August reading is only 5.8 percent below its pre-coronavirus level, and the indicator appears to be improving at a fairly good pace.”
 
How the CAB is Measured
 
The CAB is derived from a composite index of chemical industry activity. Due to its early position in the supply chain, chemical industry activity has been found to consistently lead the U.S. economy's business cycle, and the barometer can be used to determine turning points and likely trends in the broader economy.
 
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 reflecting activity data for the current month, as well as a three-month moving average.
 
Current-month, unadjusted readings of the CAB are based on high-frequency weekly and daily data. For example, it uses equity data as of the Thursday before the release date. Using mid-month data can lead to large revisions if conditions appreciably change in the second half of the month. The release dates for the CAB has been moved to the last Tuesday of each month in order to minimize revisions.
 
Find the full data set here. The next CAB is planned for September 29, 2020 at 9:10 a.m. ET.