The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC; Washington, D.C.; www.americanchemistry.com), posted a 0.3 percent decline in January on a three-month moving average (3MMA) basis.
This marks the barometer’s third consecutive month-over-month drop and suggests a slower rate of U.S. economic growth. On a year-over-year (Y/Y) basis, the barometer is up 0.8 percent (3MMA), a pronounced slowdown in the pace of growth as compared with late last year.
The unadjusted measure of the CAB was flat (0.0 percent) in January and declined 0.2 percent in December and 0.8 percent in November.
The Chemical Activity Barometer 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.
Major components of the barometer were mixed in January. Trends in construction-related resins, pigments and related performance chemistry were mixed, suggesting slow housing activity. Plastic resins used in packaging and in consumer and institutional applications turned positive, performance chemistry gained, and U.S. exports were mixed. Equity prices retreated sharply again this month, and product and input prices fell as well. Inventory indicators were positive.
The diffusion index was stable at 53 percent. This index marks the number of positive contributors relative to the total number of indicators monitored.
“The CAB continues to signal gains in U.S. commercial and industrial activity through mid-2019, but at a much slower pace as growth (as measured by year-earlier comparisons) has turned over,” said Kevin Swift, chief economist at ACC. “Despite three straight months of decline in the barometer, the cumulative decline is 1.0 percent – well below the 3.0 percent that would signal negative growth in the U.S. economy.”
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 1912, it has been shown to provide a lead of two to fourteen 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.
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