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CAB fell in May, ACC says

By Scott Jenkins |

The Chemical Activity Barometer (CAB) a leading economic indicator created by the American Chemistry Council (ACC; Washington, D.C.), fell 5.4 percent in May on a three-month moving average (3MMA) basis following a 5.4 percent decline in April. On a year-over-year (Y/Y) basis, the barometer fell 12.4 percent in May.


The unadjusted May data shows a 0.3 percent decline following a 6.3 percent drop in April and an 8.9 percent decline in March, ACC says. The diffusion index fell from 35 percent to 29 percent in May as production declines became more widespread. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The April CAB reading was revised upward by 0.37 points and the March reading was revised downward by 0.08 points.


“The May CAB reading is consistent with a recession, but given the small unadjusted decline of only 0.3 percent, one that may bottom out,” said Kevin Swift, chief economist at ACC.


The CAB has four main components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; and 4) inventories and other indicators.


Production-related indicators declined in May. Trends in construction-related resins, pigments and related performance chemistry were negative, as were resins used in appliances, light vehicles, machinery and other durable goods. Plastic resins used in packaging and for consumer and institutional applications were mixed. Performance chemistry was negative and U.S. exports were weak. Equity prices are improving and product and input prices are firming. Inventory and other supply chain indicators were negative.


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 has been found to consistently lead the U.S. economy’s business cycle, and this barometer can be used to determine turning points and likely trends in the broader economy. Month-to-month movements can be volatile, so a three-month moving average of the CAB reading is provided. This provides a more consistent and illustrative picture of national economic trends.

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