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Comment Business & Economics

Chemical Activity Barometer (CAB) rose in September, 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 1.6 percent in September on a three-month moving average (3MMA) basis, following a 2.7 percent gain in August. On a year-over-year (Y/Y) basis, the barometer was down 4.3 percent in September.

The unadjusted data show a 0.7 percent gain in September following a 2.2 percent gain in August and a 1.9 percent gain in July, ACC said. The diffusion index rose from 35 percent to 65 percent in September. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for August was revised upward by 0.89 points and that for July was revised upward by 0.42 points.

“With five consecutive months of gains, the September CAB reading is consistent with recovery in the U.S. economy,” 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.

In September, production-related indicators were mixed. Trends in construction-related resins, pigments and related performance chemistry were positive and suggest further gains. Resins and chemistry used in light vehicles and other durable goods were positive. Gain in plastic resins used in packaging and for consumer and institutional applications were mixed as economic recovery in the service sector slows. Performance chemistry improved, while U.S. exports were mixed. Equity prices flattened, while product and input prices were fairly stable. Inventory and other supply chain indicators were positive.

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 the 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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