Chemical Activity Barometer Eases Following Six Consecutive Monthly Gains; Trends Suggest Growth into Early 2019

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), slipped 0.1 percent in April to 121.6 percent on a three-month moving average (3MMA) basis. This follows six consecutive monthly gains and a dip from the barometer’s highest point since modeling began. The barometer remains up 3.8 percent on a 3MMA compared to a year earlier.

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

Despite the 0.1 percent decline, all four major components remained strong. April production-related indicators improved with U.S. exports rising again and performance chemistries gaining strength. Equity prices, along with product and input prices also rebounded while inventory remained very positive.

The diffusion index rose to 76 percent. This index marks the number of positive contributors relative to the total number of indicators monitored.

The Chemical Activity Barometer 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.

Read the full Chemical Industry Barometer Release

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