The Chemical Activity Barometer, a leading economic indicator created by the American Chemistry Council (ACC; Washington, D.C.; www.americanchemistry.com), expanded 0.6 percent in April, following a revised 0.1 percent increase in March and 0.2 percent decline in February. All data are measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 1.8 percent over this time last year, a marked deceleration of activity from one year ago, when the barometer logged a 2.7 percent year-over-year gain from 2014. On an unadjusted basis, the CAB jumped 1.4 percent, following a solid 0.8 percent gain in March.
In April, production-related indicators were positive, with improvement in plastic resins used in packaging and trends in construction-related resins, pigments and related performance chemistry suggesting a housing recovery. Equity prices rebounded significantly in April, joined by a firming in product prices. Inventories and other downstream indicators were positive.
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.
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 1919, 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.