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Optimism Grows for Future Business Conditions, Hints Leading Economic Indicator; Risks to Consensus Outlook Positive


Contact: Patrick Hurston (202) 249-6506  
Email: patrick_hurston@americanchemistry.com

‒ Chemical Activity Barometer (CAB) signals moderately-improving U.S. economy in second-half –

WASHINGTON (July 23, 2013) – Growth of the U.S. economy is moving from “slow” to “moderate,” according to the American Chemistry Council’s (ACC) monthly Chemical Activity Barometer (CAB), released today. The economic indicator, shown to lead U.S. business cycles by an average of eight months at cycle peaks, increased 0.2 percent over June on a three-month moving average (3MMA) basis. The barometer is now up 3.9 percent over a year ago, the most since its initial release in June 2012. All four major indicator categories showed growth: production, equity prices, product/selling prices, and inventories. CAB readings for May were revised upward by 0.1 percent while June was revised down by 0.1 percent.

“The Chemical Activity Barometer is signaling a moderately-improving U.S. economy into early-2014,” said Dr. Kevin Swift, chief economist at ACC. “Although other recent economic reports have been mixed, fundamentals appear strong, with housing demand still growing and consumers still spending,” he added.

Swift pointed out that recent negative housing reports likely reflect a pause rather than a change of trajectory. Permits remain higher than housing starts, mortgage rates remain low, and employment prospects are improving, he explained.

Likewise, plastic resins used in consumer and institutional applications are strengthening. Retail sales are likely to continue to strengthen as moderate job creation outweighs the lingering effects of payroll tax increases, according to Swift.

Earlier this month the S&P 500 reached an all-time record, with chemical equities also nearing all-time highs. Equity prices are often a good indicator of future activity and represent components of most leading economic indicator (LEI) systems, including the CAB.

The CAB is a leading economic indicator derived from a composite index of chemical industry activity. The chemical industry’s early position in the supply chain uniquely positions the CAB against other economic indicators. The CAB provides a long lead for business cycle peaks and troughs and can help identify emerging trends in the wider U.S. economy within sectors closely linked to the business of chemistry such as housing, retail and automobiles. Applying the CAB back to 1919, it has been shown to lead the National Bureau of Economic Research (NBER) cycle dates, by two to 14 months, with an average lead of eight months at cycle peaks. NBER is the organization that provides the official start and end dates for recessions in the United States

The business of chemistry is a $770 billion enterprise and one of America’s most significant manufacturing industries, with more than ninety-six percent of all manufactured goods touched by products of chemistry.

Notes to Editors

The CAB was developed by the economics department at ACC. The chemical industry has been found to consistently lead the U.S. economy’s business cycle given its early position in the supply chain, and this barometer can be used to determine turning points and likely trends in the wider economy. Month-to-month movements can be volatile so a three-month moving average of the barometer is provided. This provides a more consistent and illustrative picture of national economic trends.

The CAB comprises 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). Each month, ACC provides a barometer number, which reflects activity data for the current month, as well as a three-month moving average.

Applying the CAB back to 1919, it has been shown to provide a longer lead (or perform better) than the National Bureau of Economic Research, by two to 14 months, with an average lead of eight months at cycle peaks. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of three months. The median lead was also three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2007 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.

The next CAB is currently planned for: August 27, 2013 | 9:00 a.m. Eastern Time.

The CAB is designed and prepared in compliance with ACC’s Antitrust Guidelines and FTC Safe Harbor Guidelines; does not use company-specific price information as input data; and data is aggregated such that company-specific and product-specific data cannot be determined.

Note: Every effort has been made in the preparation of this publication to provide the best available information. However, neither ACC, nor any of its employees, agents or other assigns makes any warranty, expressed or implied, or assumes any liability or responsibility for any use, or the results of such use, of any information or data disclosed in this material.

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