Tuesday, December 19, 2017

Chemical Activity Barometer Increased in December

by Bill McBride on 12/19/2017 12:45:00 PM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: 2017 Closes with Strong Commercial and Industrial Activity Suggesting Healthy Business Growth Through Third Quarter 2018

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), expanded 0.6 percent in December on a three-month moving average (3MMA) basis and 0.4 percent on an unadjusted basis. The CAB is up 3.7 percent compared to a year earlier. Barometer readings were revised upwards for November (0.22), October (0.39) and September (0.08) as 2017 closes on a solid note, suggesting further business activity gains through the third quarter of 2018.
...
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.
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).

CAB increased solidly in early 2017 suggesting an increase in Industrial Production. The year-over-year increase in the CAB has slowed recently, but this still suggests further gains in industrial production in 2018.