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Comment Business & Economics

Chemical Activity Barometer (CAB) rose in February, 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), rose 0.4 percent in February, on a three-month moving average (3MMA) basis following a 0.7 percent gain in January. On a year-over-year (Y/Y) basis, the barometer increased 2.0 percent.

The unadjusted February data showed a 0.4 percent decline following a 1.5 percent increase in January and a 0.3 percent gain in December. The diffusion index rose to 68 percent in February. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for January was revised upward by 0.44 points and that for December was revised downward by 0.26 points.

“The CAB signals gains in U.S. commerce into the fourth quarter of 2020,” 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 increased in February, ACC says. Trends in construction-related resins, pigments and related performance chemistry generally improved and suggest further gains in housing. Plastic resins used in packaging and for consumer and institutional applications were mixed. Performance chemistry improved, with widespread gains among segments. U.S. exports were mixed. Equity prices surged, while product and input prices improved. Inventory and other indicators were mixed.

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.

Applying the CAB back to 1912, it has been shown to provide a lead of two to 14 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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