The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council, rose 0.7% in April on a three-month moving average (3MMA) basis following a 1.1% increase in March and a 0.9% gain in February. On a year-over-year (Y/Y) basis, the barometer rose 12.0% in April (3MMA).
The unadjusted data show a 0.3% increase in April following a 1.4% gain in March, ACC said. The diffusion index reached 100% in April. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for March was revised downward by 0.35 points and the reading for February was revised downward by 0.58 points. The April data are provisional and subject to revision.
“The latest CAB reading is consistent with solid expansion of commerce, trade and industry,” said Kevin Swift, chief economist at ACC.
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.
In April, production-related indicators were positive. Trends in construction-related resins and related performance chemistry were solid, indicative of robust gains in this sector. Resins and chemistry used in other durable goods were strong, reflecting growing orders for light vehicles, furniture, capital equipment, consumer electronics and other durable goods. Plastic resins used in packaging and for consumer and institutional applications were positive, a mark of rising consumer spending. Performance chemistry for industry was largely positive, reflecting strength in manufacturing. U.S. exports were positive. Equity prices showed further gains. Product and input prices were positive, as were inventory and other supply chain indicators.
The CAB is a leading economic indicator derived from a composite index of chemical industry activity. Due to its early position in the supply chain, chemical industry activity has been found to consistently lead the U.S. economy’s business cycle, and the barometer can be used to determine turning points and likely trends in the broader economy. Month-to-month movements can be volatile, so a three-month moving average of the CAB reading 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 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 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.
