Economic Indicator Shows Signs of Slower Growth

Economic Indicator Shows Signs of Slower Growth

The chemical industry’s leading economic indicator points to a more sluggish U.S. economy in 2019.

The United States’ economy is continuing to grow but at a much slower pace than last year, according to a leading economic indicator published each month by the American Chemistry Council (ACC).

Called the Chemical Activity Barometer (CAB), it posted a 0.3% decline in January on a three-month moving average (3MMA) basis. This marks the barometer’s third consecutive month-over-month drop and suggests a slower rate of economic growth, the council says.

On a year-over-year (Y/Y) basis, the barometer is up 0.8% (3MMA), a pronounced slowdown in the pace of growth as compared with late last year, ACC reports. The unadjusted measure of the CAB was flat (0.0%) in January and declined 0.2% in December and 0.8% in November.

“The CAB continues to signal gains in U.S. commercial and industrial activity through mid-2019, but at a much slower pace as growth (as measured by year-earlier comparisons) has turned over,” observes Kevin Swift, chief economist at the ACC. “Despite three straight months of decline in the barometer, the cumulative decline is 1.0%—well below the 3.0% that would signal negative growth in the U.S. economy.”

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

The importance of the barometer can be pegged to the fact that 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, according to the ACC.

Major components of the barometer were mixed in January. Trends in construction-related resins, pigments and related performance chemistry were mixed, suggesting slow housing activity. Plastic resins used in packaging and in consumer and institutional applications turned positive, performance chemistry gained, and U.S. exports were mixed. Equity prices retreated sharply again this month, and product and input prices fell as well. Inventory indicators were positive, the ACC adds.

The diffusion index was stable at 53%. The council notes that this index marks the number of positive contributors relative to the total number of indicators monitored.

ACC earlier predicted that following growth throughout 2018, the chemical industry is expected to see healthy demand continue throughout this year for basic chemicals, with most specialty segments predicted to benefit from growing demand as well, especially in construction markets.

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