The Chemical Activity Barometer, a leading economic indicator created by the American Chemistry Council, expanded 0.5 percent in February on a three-month moving average basis, its fifth such solid gain following the 2017 hurricanes. On an unadjusted basis, growth was just 0.1 percent. The CAB is up 4.2 percent on a 3MMA compared to a year earlier.

"All eyes have been on inflation, starting with a strong gain in January wages reported two weeks and continuing into last week with a larger than expected gain in consumer-level inflation," said Kevin Swift, chief economist at ACC. "Equity markets have suffered, but with some good reports recently on the real economy, along with people calming down, equity markets now seem to be on the mend," he added.

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.

February production-related indicators showed continued improvement, including gains in construction-related resins and pigments; plastic resins used for consumer packaging; performance chemistries; and U.S. exports. While equity prices receded, inventory and other indicators were very positive.

Overall, the diffusion index contracted to 53 percent. This index marks the number of positive contributors relative to the total number of indicators monitored. 

The Chemical Activity Barometer is a leading economic indicator derived from a composite index of chemical industry activity. 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.

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.

Chemical Activity Barometer for the Latest Six Months and Year-Ago Month*

*Percentage changes may not reflect index values due to rounding.

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. The CAB was developed by the economics department at the American Chemistry Council.