Tuesday, February 23, 2016

Chemical Activity Barometer "Slips" in February

by Bill McBride on 2/23/2016 12:42:00 PM

Here is an indicator that I'm following that appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Slips in February

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), slipped 0.1 percent in February following flat performance in January and two months of revised gains in November and December 2015. All data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 1.5 percent over this time last year, a decline of fifty-percent from activity of one year ago when the barometer logged a 3.0 percent year-over-year gain from February 2014. On an unadjusted basis the CAB rose 0.1 percent following two consecutive monthly declines.
Applying the CAB back to 1919, 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.
emphasis added
Chemical Activity Barometer Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

Currently CAB is up slightly year-over-year, and this suggests a slight increase in Industrial Production over the next year is possible.