The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC; Washington, D.C.; www.americanchemistry.com), eased 0.3 percent in June on a three-month moving average (3MMA) basis following a 4.6 percent decline in May. On a year-over-year (Y/Y) basis, the barometer fell 12.0 percent in June.
The unadjusted data show a 3.5 percent gain in June following a 2.2 percent gain in May and a 6.3 percent decline in April. The diffusion index rose from 35 percent to 53 percent. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for May was revised upward by 2.68 points and the April reading was revised upward by 0.05 points.
“While the latest CAB reading is consistent with a recession, two consecutive months of gains in the unadjusted data is a positive development,” said Kevin Swift, chief economist at ACC. “We’ll want to see at least another month of gains in order to conclude that the economy has turned a corner.”
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 were slightly positive in June. Trends in construction-related resins, pigments and related performance chemistry were mixed, 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 positive. Performance chemistry rebounded and U.S. exports were weak. Equity prices were mixed and product and input prices are firming. Inventory and other supply chain 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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