The American Chemistry Council (ACC) today released the first monthly report of its Chemical Activity Barometer (CAB), a new leading macroeconomic indicator.
The data suggest that the broader U.S. economic recovery is slowing. The June CAB indicates that the U.S. economy will experience modest or decreased growth in economic activity for the remainder of the year, and that the U.S. housing market has bottomed.
“The business of chemistry is absolutely essential to the U.S. economy and is one of the nation’s most significant manufacturing industries,” said Cal Dooley, ACC’s president and CEO. “Our industry plays a key role as an economic growth engine and this new leading economic indicator highlights that link between chemistry and the economy,” he added. The CAB is a composite index of chemical industry measures that produces a leading indicator of broader economy-wide activity. It comprises indicators drawn from a range of chemicals and sectors including 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).
The chemical industry’s early position in the supply chain uniquely positions the CAB against other economic indicators. The CAB provides a long lead for business cycle peaks and troughs and can help identify emerging trends in the wider U.S. economy within sectors closely linked to the business of chemistry such as housing, retail, and automobiles. Applying the model back to 1947, the CAB has been shown to provide a longer lead (or perform better) than the National Bureau of Economic Research (NBER), by two to 14 months, with an average lead of eight months. NBER is the organization that provides the official start and end dates for recessions in the United States.
“After a relatively strong start to 2012, the American Chemistry Council’s CAB is signaling a slowing of the U.S. economic recovery,” said Dr. Kevin Swift, chief economist at ACC. “The CAB also appears to suggest that the long-anticipated U.S. housing market recovery is emerging, but the recovery will be slow.”
“As we look at the remainder of 2012, the CAB points to a continued weakness in economic growth in the second half of the year,” Swift added.
The preliminary June data from the CAB showed a decrease of 1.3% over the previous month. This follows relatively strong gains during the early months of 2012.
In addition to the slowdown of broader economic recovery, construction-related activity has weakened as production of chlor-alkalies and some construction-related polymers declined after several months of increased production. This decrease is significant because these chemicals are used to manufacture a variety of plastic products for building and construction of housing, such as siding, window frames and doors.
Notes to Editors
This is the first monthly report of the Chemical Activity Barometer. It has been developed by the economics department at the American Chemistry Council. 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.
The CAB’s three-month moving average (3 MMA) declined in June, suggesting muted growth prospects in the months ahead.
Of its key indicators, production-related indicators remained flat, while chemical company equity data, hours worked, and inventories were down. Other conclusions over the past three-month moving average basis and how this compares to June 2011:
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. 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 model back to 1947, the CAB has been shown to provide a longer lead (or perform better) than the National Bureau of Economic Research, by two to 14 months, with an average lead of eight months. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of three months. The median lead was also three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2007 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production index.
The chemistry industry is one of the largest industries in the United States, generating $760 billion. The manufacturing sector is the largest consumer of chemical products, and 96 percent of manufactured goods are touched by chemistry.