Chemical Activity Barometer Slides

From the news-you-could-have-used yesterday department, The American Chemistry Council's Chemical Activity Barometer (CAB) dropped 0.3% in August, a marked deceleration of activity from second quarter performance. The ACC released its CAB findings one day after financial markets around the world plunged. The CAB decline followed a 0.1% gain in July and 0.5% gain in both May and June. Data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 1.8%, still, it too was a deceleration of annual growth as compared to this time last year when the barometer logged a 4.2% annual gain over 2013.


“Chemical, other equity, and product prices all suffered greatly in our latest reading of the Chemical Activity Barometer,” said ACC Chief Economist Kevin Swift. “There continued to be upward momentum in plastic resins for both consumer applications and light vehicles, but we also continue to see declines in oilfield chemicals and U.S. exports overall, largely as a result of softer oil prices and a strong US dollar,” Swift said.


Despite these modest headwinds, the Chemical Activity Barometer is still signaling slow gains in business activity into the early part of 2016.


The CAB 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 July chemical equity prices were down, while product prices and production were flat, and inventories continued to improve.


According to the ACC, 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 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 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 2012 was used) of a reference time series. The latter is the Federal Reserve's Industrial Production Index.