New Chemical Industry Economic Index Shows Slowing U.S. Growth

ACC says early demand for chemical products in supply chain provides accurate barometer of broader economy.

A new Chemical Activity Barometer (CAB) released by the American Chemistry Council indicates that the broader U.S. economy is slowing. The new index also suggests that the U.S. housing market has bottomed but that the recovery will be slow.

The CAB is a composite index of chemical industry measures that produces a leading indicator of broader economy-wide activity, ACC explains. Components of the index include indicators relating to the production of chlorine and other alkalies, pigments, plastic resins, and other selected basic industrial chemicals; chemical company stock data; hours worked in chemicals; publicly sourced, chemical price information; end-use (or customer) industry sales-to-inventories; and several broader leading economic measures (building permits and new orders).

The chemical industry generates $760 billion. ACC says manufacturing is the largest consumer of chemical products, and 96% of manufactured goods are impacted by chemistry.

ACC economists analyzed data going back to 1947 in developing the new index. They found that the index anticipates peaks in the broader U.S. economy by an average of eight months and troughs by three months, explains Kevin Swift, ACC's chief economist.

The June data from the CAB shows a decrease of 1.3% compared to May. Among its key indicators, production-related indicators remained flat while chemical company equity data, hours worked, and inventories were down.

ACC notes that construction-related activity has weakened as production of chlor-alkalies and some construction-related polymers declined after several months of increased production. This decrease is significant, the trade association says, because these chemicals are used to manufacture various plastic products for housing, such as siding, window frames and doors.

Noting the slowdown after a promising start to the year, ACC's Swift says this is the third year when data indicating growth in jobs and a sustainable recovery has given way to pessism and concerns about a double dip recession. He says this pattern can be attributed in large part to energy prices and to concerns about the Eurozone economy.

ACC says it expects to release the next CAB on July 24.

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