Chemical Activity Barometer: More American economic growth coming?

Chemical Activity Barometer shows acceleration of activity following winter freeze

An important leading economic indicator –  Chemical Activity Barometer – took another tick upward in June, perhaps foreshadowing significant growth for the American economy in the near future.

The Chemical Activity Barometer was developed by the economics department at the American Chemistry Council.

The Chemical Activity Barometer (CAB), is derived from a composite index of chemical industry activity and has been found to consistently lead the U.S. economy’s business cycle given its early position in the supply chain.

The Chemical Activity Barometer increased by 0.7 per cent in June, preceded by a similar gain in May, and an upwardly revised 0.5 per cent gain in April. The pattern represents an acceleration of productivity not seen since the first quarter of 2011.

Data is measured on a measured on a three-month moving average. Accounting for adjustments, the CAB remains up 3.7 percent over this time last year.

Applying the Chemical Activity Barometer 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 Chemical Activity Barometer leads by one to seven months, with an average lead of four months. The median lead was three months.

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 June chemical equity process, product prices, and inventory all improved.

The Chemical Activity Barometer 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).

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.