Contact: Patrick Hurston (202) 249-6506
– Sharp decline may reflect post-election economic uncertainty –
WASHINGTON (November 20, 2012) – The American Chemistry Council (ACC) today released the sixth monthly report of its Chemical Activity Barometer (CAB), a leading economic indicator derived from a composite index of chemical industry activity. The November CAB showed a sharp 0.5 percent drop over the previous month. The abrupt decline follows four consecutive monthly gains.
“The good news continues to be that we are witnessing sustained, healthy activity in construction-related plastic resins, coatings, pigments and other chemistry. It’s possible that with the elections now behind us, the CAB is reflecting both the effects of Superstorm Sandy, as well as the uncertainty in the real economy as a result of the fiscal cliff and the resulting sequestered budget cuts,” said Dr. Kevin Swift, chief economist at ACC. “The products of chemistry are the engine of our economy and go into ninety-six percent of all manufactured goods. If you look at taking approximately $100 billion out of the economy next year alone, an early supply chain industry like the business of chemistry starts to react very early,” Swift added.
Swift noted that month-to-month movements can be volatile so a three-month moving average is provided. This provides a more consistent and illustrative picture of national economic trends, he explained.
“If we look at the three-month moving average, we’ve got four months of growth suggesting slow and tentative economic growth into 2013,” he said.
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 U.S.
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 November, suggesting steady but slow growth prospects into 2013. The July, August, September and October CAB was revised upward from last month’s report, July by 0.2 percent, August by 0.1 percent, September by 0.8 percent and October by 0.7 percent.
Of its key indicators, chemical company equities and inventories were down. Production and product/selling prices were flat.
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 percent of manufactured goods are touched by chemistry.
The next CAB is currently planned for: December 18, 2012 | 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.