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Chemical Activity Barometer up slightly in March, 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 1.2% in March on a three-month moving average (3MMA) basis, following a 1.0% increase in February. On a year-over-year (Y/Y) basis, the barometer rose 5.5% in March.

The unadjusted data show a 1.2% gain in March following a 0.9% gain in February, ACC said. The diffusion index rebounded to 82% in March, well above the long-term average of 58%. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for February was revised upward by 0.18 points and the reading for January was revised downward by 0.57 points. The March data are provisional and subject to revision.

“The latest CAB reading is consistent with solid expansion of commerce, trade and industry into the fourth quarter,” 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 March, production-related indicators were positive. Trends in construction-related resins and related performance chemistry were solid and suggest further expansion past the weak February home sales and housing starts. Resins and chemistry used in other durable goods were strong. Plastic resins used in packaging and for consumer and institutional applications were positive. Performance chemistry for industry was mixed. U.S. exports were positive, while equity prices showed further gains. Product and input prices were positive, as were inventory and other supply chain indicators.

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.