The American Chemistry Council (ACC) released the sixth monthly report of its Chemical Activity Barometer (CAB), a leading economic indicator derived from a composite index of chemical industry activity. The November CAB showed a sharp 0.5% drop over the previous month. The abrupt decline follows four consecutive monthly gains.
"The good news continues to be that we are witnessing sustained, healthy activity in construction-related plastic resins, coatings, pigments, and other chemistry,” says Kevin Swift, ACC chief economist. “It's possible that with the elections now behind us, the Chemical Activity Barometer is reflecting both the effects of Superstorm Sandy, as well as the uncertainty in the real economy as a result of the fiscal cliff and the resulting sequestered budget cuts. The products of chemistry are the engine of our economy and go into 96% of all manufactured goods. If you look at taking approximately $100 billion out of the economy next year alone, an early supply chain industry like the business of chemistry starts to react very early.”
Swift notes that month-to-month movements can be volatile so a three-month moving average is provided. This offers a more consistent and illustrative picture of national economic trends. "If we look at the three-month moving average, we've got four months of growth suggesting slow and tentative economic growth into 2013," he says.
The chemical industry's early position in the supply chain uniquely positions the CAB against other economic indicators. The CAB provides a long lead for business cycle peaks and troughs and can help identify emerging trends in the wider US economy within sectors closely linked to the business of chemistry such as housing, retail and automobiles. Applying the CAB back to 1947, it has been shown to lead the National Bureau of Economic Research (NBER) cycle dates, by two to 14 months, with an average lead of eight months. NBER is the organization that provides the official start and end dates for recessions in the United States.