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STRONG CAB INCREASE OF 0.6%: MARKS FOUR CONSECUTIVE MONTHLY GAINS,
ECONOMIC GROWTH EXPECTED IN 2013
WASHINGTON, D.C. (October 23, 2012) – The American Chemistry Council (ACC) today released the fifth monthly report of its Chemical Activity Barometer (CAB), a leading economic indicator derived from a composite index of chemical industry activity. The October CAB showed a strong 0.6% growth over the previous month. This represents the fourth consecutive monthly increase in the CAB, and follows small upward revisions for the previous three months.
“The strong growth witnessed this month was driven in particular by rising activity in construction-related plastic resins, coatings, pigments and other chemistry and is consistent with reports last week that highlighted that home construction was at its highest level for four years,” said Dr. Kevin Swift, chief economist at ACC. “The CAB has been signaling this recovery in housing for some time now and our indicators suggest that the outlook for the housing sector will continue to improve into 2013,” Swift added.
“This month’s CAB also shows notable gains in consumer and institutional applications and in retail sales. This suggests that overall U.S. consumer confidence is improving, and helps to lower the odds of another U.S. recession. That said, the uncertainty arising from the impending fiscal cliff, and the ongoing threat of worsening conditions in Europe or China continues to pose significant risks to any U.S. economic recovery.”
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 CAB back to 1947, it has been shown to lead the National Bureau of Economic Research (NBER) cycle dates, 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.
There were further positive trends in other areas of the October CAB data, with equity prices and product prices positive overall. Inventory and other broader economic indicators were mixed and U.S. exports remain slow.
Notes to Editors
The CAB was developed by the economics department at ACC. 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) increased in October, suggesting steady but slow growth prospects into 2013. The June, July, August and September CAB was revised upward from last month’s report, June by 0.1%, July by 0.2%, August by 0.1% and September by 0.3%.
Of its key indicators, chemical company equities and prices grew while production and inventories remained flat. Other conclusions over the past three-month moving average basis and how this compares to October 2011:
Where ˄ is continued growing activity; ‒ is flat or insignificant growth in activity; and ˅ is slowing or negative growth (declining activity).
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 CAB back to 1947, it 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% of manufactured goods are touched by chemistry.
The next CAB is currently planned for November 20, 2012 at 9:00 a.m. EST
The CAB is designed and prepared in compliance with ACC’s Antitrust Guidelines and FTC Safe Harbor Guidelines; does not use company-specific price information as input data; and data is aggregated such that company-specific and product-specific data cannot be determined.
Note: Every effort has been made in the preparation of this publication to provide the best available information. However, neither ACC, nor any of its employees, agents or other assigns makes any warranty, expressed or implied, or assumes any liability or responsibility for any use, or the results of such use, of any information or data disclosed in this material.