Tuesday, September 29, 2020

"Chemical Activity Barometer Rises in September"

by Calculated Risk on 9/29/2020 11:12:00 AM

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

From the American Chemistry Council: Chemical Activity Barometer Rises in September

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), rose 1.6 percent in September on a three-month moving average (3MMA) basis following a 2.7 percent gain in August. On a year-over-year (Y/Y) basis, the barometer was down 4.3 percent in September.

The unadjusted data show a 0.7 percent gain in September following a 2.2 percent gain in August and a 1.9 percent gain in July. The diffusion index rose from 35 percent to 65 percent in September. The diffusion index marks the number of positive contributors relative to the total number of indicators monitored. The CAB reading for August was revised upward by 0.89 points and that for July was revised upward by 0.42 points.

“With five consecutive months of gains, the September CAB reading is consistent with recovery in the U.S. economy,” said Kevin Swift, chief economist at ACC.
Applying the CAB back to 1912, 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 (CAB) compared to Industrial Production.

Although the CAB (red) generally leads Industrial Production (blue), they both collapsed together with the sudden stop of the economy in March. The increases in the CAB suggest further increases in Industrial Production, but still a large year-over-year decline.