US Economy Chemical Activity Barometer

US Economy Chemical Activity Barometer

US Economy Chemical Activity Barometer

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), expanded 0.4 percent in August following an upward revision for July. This marks the barometer’s sixth consecutive monthly gain. Accounting for adjustments, the CAB is up 3.2 percent over this time last year, the strongest year over year growth since January 2015. All data is measured on a three-month moving average (3MMA). On an unadjusted basis the CAB climbed 0.3 percent in August, following a 0.6 percent jump in July.

“The CAB is signaling higher, and possibly accelerating, U.S. business activity into 2017. The services sectors have begun to improve and likely accelerated during recent months, and manufacturing appears to be gathering momentum,” said ACC’s Chief Economist Kevin Swift.

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.

In August, three of the four core categories for the CAB improved. Production-related indicators were positive, with goods reports on housing trends strengthening. Equity prices continued to gain and inventory remained positive. Product prices slipped slightly in August.

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.

Chemical Activity Barometer for the Latest Six Months and Year-Ago Month*

Aug-15

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

CAB (3 MMA)

110.5

110.6

111.0

111.8

112.7

113.5

114.0

% M/M

-0.1

0.1

0.3

0.8

0.7

0.7

0.4

% Y/Y

2.1

1.6

1.6

1.9

2.1

2.6

3.2

CAB

110.1

111.0

111.6

112.9

113.4

114.1

114.4

% M/M

-0.5

0.5

0.6

1.1

0.4

0.6

0.3

% Y/Y

1.5

1.7

1.6

2.3

2.4

3.1

4.0

*Percentage changes may not reflect index values due to rounding.

The CAB comprises indicators relating to the production of chlorine and other alkalies, pigments, plastic resins and other selected basic industrial chemicals; chemical company stock data; hours worked in chemicals; publicly sourced, chemical price information; end-use (or customer) industry sales-to-inventories; and several broader leading economic measures (building permits and new orders). Each month, ACC provides a barometer number, which reflects activity data for the current month, as well as a three-month moving average. The CAB was developed by the economics department at the American Chemistry Council.

The next CAB is currently planned for:
27 September 2016
9:00 a.m. Eastern Time

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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