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Comment Business & Economics

Chemical Activity Barometer (CAB) is flat in June, ACC says

By Scott Jenkins |

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC; Washington, D.C.; www.americanchemistry.com), was flat (0.0 percent change) in June on a three-month moving average (3MMA) basis, following three monthly gains. On a year-over-year (Y/Y) basis, the barometer is up 0.3 percent (3MMA).

The unadjusted measure of the CAB retreated 0.2 percent in June and fell 0.3 percent in May. The diffusion index rose to 65 percent in June. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for May was revised downward by 0.38 points and that for April by 0.22 points.

“The slowing economy and rising trade tensions have weighed on business confidence and investment, resulting in mixed manufacturing activity,” said Kevin Swift, chief economist at ACC. “In summary, the CAB reading continues to signal gains in U.S. commercial and industrial activity through late 2019, but at a moderated pace.”

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 in June were slightly positive. Trends in construction-related resins, pigments and related performance chemistry were mixed and suggest further slow gains in housing activity. Plastic resins used in packaging were positive, while those for consumer and institutional applications were mixed. Performance chemistry and U.S. exports were mixed. Equity prices rebounded this month, while product and input prices rose. Inventory and other indicators were positive.

The CAB 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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