The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC; Washington, D.C.; www.americanchemistry.com), continued to see moderated upward growth in August, with a 0.2% gain over July, as measured on a three-month moving average (3MMA). This represented a deceleration from the 0.4% gain in July and an average gain of 0.5% for the first six months of 2014. Despite the softening pace, the August CAB marked a string of gains going back to April 2013. Though the pace of growth has slowed, current gains have the CAB up a solid 4.3% over this time last year, and the barometer remains at its highest level since January 2008.
“Consistent with other recent economic reports, including the Conference Board and the Chicago Fed National Activity Index, the Chemical Activity Barometer continues to point to a slowly expanding U.S. economy, at least through the first quarter of 2015,” said Dr. Kevin Swift, chief economist at ACC. “What makes the CAB unique however, is its lead time in predicting the ebbs and flows of the economy, and the slight drag on plastic resins used in consumer and institutional applications parallels the weaker consumer confidence we are seeing,” Swift added.
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. During August, the components were mixed, with production flat, equity prices and inventories up, and product prices down.
Though the production indicator was flat in August, construction-related coatings, pigments and other performance chemistries remained strong. Likewise, chemical equities outpaced the broader market this month. Commenting further on this month’s reading, Swift also noted that despite renewed economic troubles in Europe, China, and Latin America, U.S. exports are picking up with the United Kingdom and our NAFTA partners.
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.