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April 25, 2013

CAB leading economic indicator shows 9th consecutive monthly gain in April

Scott Jenkins

Despite headlines to the contrary, the U.S. economy remains in a state of slow growth, according to the American Chemistry Council's (ACC; Washington, D.C.; www.americanchemistry.com) monthly Chemical Activity Barometer (CAB), released this week. The economic indicator, shown to lead U.S. business cycles by an average of eight months, increased 0.2% over March on a three-month moving-average (3MMA) basis.

This is the barometer's ninth consecutive monthly gain, following an upward revision in March of 0.1%. The year over year 3MMA logged a 3.1 percent gain over April 2012. The CAB is a leading economic indicator derived from a composite index of chemical industry activity. Due to its early position in the supply chain, chemical industry activity leads that of the overall economy.

"We're still seeing growth, albeit slow, and that's good news," said ACC Director of Economics and Policy Analysis Martha Moore. "The data are actually showing a break from the trends of the past three years in which we've had a first-quarter false-positive, only to have things drop off during the second and third quarters of the year," Moore said.

Flattening activity in construction-related plastic resins, coatings, pigments and other building and construction-related chemistry may suggest the pace of the housing recovery will slow. In contrast, plastic resins used in consumer and institutional applications continue to expand, suggesting further gains driven by the consumer, but at a moderated pace. "The growth is decelerating, but overall the Chemical Activity Barometer continues to suggest measured expansion of the U.S. economy through 2013," Moore said.  Positive gains continued in three broad areas: production indicators, product prices and inventories.

The business of chemistry is a $760 billion enterprise and one of America's most significant manufacturing industries, with more than ninety-six percent of all manufactured goods touched by products of chemistry.

The chemical industry's early position in the supply chain uniquely positions the CAB against other economic indicators. The CAB provides a long lead for business cycle peaks and troughs and can help identify emerging trends in the wider U.S. economy within sectors closely linked to the business of chemistry such as housing, retail and automobiles. Applying the CAB back to 1919, it has been shown to lead the National Bureau of Economic Research (NBER) cycle dates, by two to 14 months, with an average lead of eight months. NBER is the organization that provides the official start and end dates for recessions in the U.S.


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