by Bill McBride on 3/21/2017 11:52:00 AM
Note: This appears to be a leading indicator for industrial production.
From the American Chemistry Council: Consumer, Business Confidence Reach Levels Not Seen in Decades; Optimism Reflected in Increased Chemical Industry Activity
The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), 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.
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.
Click on graph for larger image.
This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production. It does appear that CAB (red) generally leads Industrial Production (blue).
CAB has increased solidly over the last several months, and this suggests an increase in Industrial Production in 2017.