posted on 21 March 2017
from the American Chemistry Council
The Chemical Activity Barometer (CAB) posted its strongest year-over-year gain in nearly seven years. The 5.5 percent increase over this time last year reflects elevated consumer and business confidence and an overall rising optimism in the U.S. economy.
Speaking last week, Federal Reserve Chairwoman Janet Yellen also referenced a "confidence in the robustness of the economy" as a reason to move forward with an interest rate hike.
The barometer posted a 0.5 percent gain in March, following a 0.5 percent gain in February and 0.4 percent gain in January. All data is measured on a three-month moving average (3MMA). Coupled with consecutive monthly gains in the fourth quarter of 2016, the pattern shows consistent, accelerating activity. On an unadjusted basis the CAB climbed 0.4 percent in March, following a 0.4 percent gain in February and a 0.6 percent increase in January.
The Chemical Activity Barometer has four primary components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; and 4) inventories and other indicators.
In March, production-related indicators were positive, with U.S. exports improving. Equity prices and inventory indicators were also positive while product prices remained stable. Overall the barometer suggests accelerating gains in U.S. business activity through the fourth quarter.
Caveats on the Chemical Activity Barometer (CAB):
The definition of the CAB:
This index is a mixture of monetary / non-monetary elements with an analysis methodology which is not transparent - and does include some non-chemical industry elements such as the ISM manufacturing index and residential building permits. The composition and concept of the CAB according to the authors:
As this is a relatively new leading index, our biggest concern is backward revision (which degrades real time accuracy). Thankfully (providently?) backward revisions have been relatively small to date.
No single economic forecasting index has proven to have all the answers, as the reason the economy recesses is a combination of changing dynamics. Econintersect will continue to review this leading index and others as part of our monthly economic forecast.
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