Wednesday, January 23, 2019

Chemical Activity Barometer Declines in January

by Bill McBride on 1/23/2019 02:11:00 PM

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

From the American Chemistry Council: Chemical Activity Barometer Shows Signs of Slower Growth in U.S. Economy

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), posted a 0.3 percent 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 U.S. economic growth. On a year-over-year (Y/Y) basis, the barometer is up 0.8 percent (3MMA), a pronounced slowdown in the pace of growth as compared with late last year.
...
“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,” said Kevin Swift, chief economist at ACC. “Despite three straight months of decline in the barometer, the cumulative decline is 1.0 percent – well below the 3.0 percent that would signal negative growth in the U.S. economy.”

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).

The year-over-year increase in the CAB has softened recently, suggesting further gains in industrial production into 2019, but at a slower pace.