Chemical Activity Barometer rises in January

Jan. 26, 2021
"With nine months of gains, the latest CAB reading is consistent with expansion in the U.S. economy," said Kevin Swift, chief economist at the American Chemistry Council.

WASHINGTON, Jan. 26, 2021 (PRNewswire) — The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), rose 1.5% in January on a three-month moving average (3MMA) basis following a 1.3% increase in December. On a year-over-year (Y/Y) basis, the barometer rose 1.3% in January.

The unadjusted data show a 1.2% gain in January, accelerating from a 0.4% increase in December. The diffusion index climbed to 79% in January from 71% in December. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for December was revised upward by 1.02 points and that for November was revised upward by 0.94 points. As always, the January data are provisional and subject to revision.

"With nine months of gains, the latest CAB reading is consistent with expansion in the U.S. economy," 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 January, production-related indicators were positive. Trends in construction-related resins and related performance chemistry were solid and suggest further gains in housing, a sector that has performed well during the COVID-19 recession. Reflecting strength in light vehicles and new business investment, resins and chemistry used in other durable goods were strong. Gains in plastic resins used in packaging and for consumer and institutional applications were positive. Performance chemistry for industry was strong, reflecting a strong manufacturing sector. U.S. exports were positive, while equity prices increased. 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.

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 reflecting activity data for the current month, as well as a three-month moving average. The CAB was developed by the Economics Department at ACC.

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