New ACC indicator points to lower US industrial production

05 June 2012 20:06  [Source: ICIS news]

COLORADO SPRINGS (ICIS)--The American Chemistry Council’s (ACC) new leading economic indicator is pointing to lower US industrial production in the coming months, its chief economist said on Tuesday.

“The chemical industry is the canary in the coal mine – it is a bellwether for the economy, and its performance foreshadows that of the overall manufacturing sector,” said ACC chief economist Kevin Swift.

Swift introduced the Chemical Activity Barometer (CAB) at a press briefing at the ACC Annual Meeting in Colorado Springs.

The CAB is the “ACC’s first-of-its kind, leading macroeconomic indicator, which will highlight the peaks and troughs in the overall US economy and illuminate potential trends in market sectors outside of chemistry,” said Swift.

The economist said the CAB index provides a longer lead time for upcoming industrial production than that of the National Bureau of Economic Research (NBER), leading by two to 14 months, with an average lead of eight months.

On a retroactive basis, the CAB has been rising since the 2009 recession, but the gains are now flattening out, Swift pointed out.

And importantly, the year-over-year change in the 3-month moving average of the CAB is close to 0%, while that of industrial production is positive at almost 5%, he said.

“We anticipate the year-over-year change in US industrial production to turn down,” said Swift.

The CAB is a composite index of indicators drawn from a range of chemicals and sectors, including chlorine and other alkalis, pigments, plastic resins and other selected basic industrial chemicals.

Other indicators include hours worked in the chemical sector, chemical company stock data, publicly-sourced chemical price information, customer industry sales-to-inventories and several broader leading economic measures such as building permits and the ISM PMI (Purchasing Managers Index) of new orders.

Back-testing from 1947 to 2011, the CAB peaked an average of eight months before the peak in industrial production, and troughed an average of three months before the bottom, noted Swift.

Swift also gave a 30-35% probability of another US recession in the near to mid-term, noting that the risk has risen versus six months ago.

“The eurozone is a major risk factor. It has significantly impacted exports from the US. We’re also seeing flat to negative activity in China,” said Swift.

“However, in the US, housing has bottomed and light vehicle sales are doing well along with increased business investment,” he added.

The CAB will come out on a monthly basis, with the first to be unveiled after 20 June, said the economist.

By: Joseph Chang
+1 713 525 2653

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