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April 23, 2014

ACC's Chemical Activity Barometer hints at solid growth

Scott Jenkins

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC; Washington, D.C.;, has reached its highest peak since March 2008. Even accounting for seasonal adjustments, the unusually harsh winter skewed earlier data, and this month’s barometer reflects upward revisions for January, February, and March of 0.1, 0.2, and 0.1 points, respectively. On a three-month moving average (3MMA) basis, the April CAB reading showed a healthy 0.5% gain over March. Together with the upward revisions, this suggests further growth momentum in the broader economy in the months ahead.
“After an economic deep freeze over the past several months, it looks like the U.S. economy is finally starting to bloom,” said Dr. Kevin Swift, chief economist at ACC. “Economists around the country are coalescing around the idea that the fundamentals of our economy may be healthier than previously believed. This is something that the Chemical Activity Barometer has been suggesting for quite some time,” Swift added. Recent Federal Reserve data showed U.S. manufacturing output rose for the second consecutive month, and that industrial production was up 0.7%, besting many analysts’ expectations. Tracking closely with the CAB, the Federal Reserve data also revealed capacity utilization to be at its highest point since June 2008. The CAB, shown to lead U.S. business cycles by an average of eight months at cycle peaks stands at 95.2, up 3.2% over one year ago, and is showing an increased pace of growth over the fourth quarter of 2013.
Overall results in four primary components of the CAB were mixed-to-positive, with product/selling prices, production, and inventories up, while equity prices were flat, but still outpacing the broader market.
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.

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