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Barometer Signals Slowing Growth in Commercial and Industrial Activity Through Mid-2019

WASHINGTON (February 26, 2019) – The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), posted a 0.0 percent change in February on a three-month moving average (3MMA) basis. On a year-over-year (Y/Y) basis, the barometer is up 0.2 percent (3MMA).

The unadjusted measure of the CAB rose 0.2 percent in February and 0.1 percent in January after a 0.2 percent decline in December. The diffusion index rebounded to 65 percent in February, up from 53 percent in January. This index marks the number of positive contributors relative to the total number of indicators monitored.

“The Chemical Activity Barometer reading was essentially flat in February following three months of decline,” said Kevin Swift, chief economist at ACC. “The cumulative drop was 1.0 percent – still well below the 3.0 percent threshold for a recession signal. The latest CAB signals gains in U.S. commercial and industrial activity through mid-2019, but at a slower rate of growth as compared with a year earlier.”

The government shutdown resulted in delays in publishing many data series that ACC uses to compare the CAB. Such delays can make it more difficult to gauge current economic conditions.

The CAB has four main components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; and 4) inventories and other indicators.

All four major components rose in February. Trends in construction-related resins, pigments and related performance chemistry were mixed and suggest slow housing activity. Despite weakness in the latest retail sales report, plastic resins used in packaging and in consumer and institutional applications were positive. Performance chemistry gained and U.S. exports were mixed. Equity prices rebounded sharply this month, and product and input prices rose as well. Inventory and other indicators were positive.

The CAB 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 1912, it has been shown to provide a lead of two to fourteen 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.

CAB-chart-Feb2019

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.

For the full data set, please visit https://www.americanchemistry.com/CAB-vs-Industrial-Production/.

The next CAB is currently planned for March 19, 2019 at 9:00 a.m. EST.

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