The American Chemistry Council's ("ACC") recently released third
monthly report on its leading economic indicator points to
continued sluggish recovery in the U.S. economy.
The report shows that the Chemical Activity Barometer ("CAB"), the
Washington-based chemical industry trade group's macroeconomic
indicator, rose 0.4% to 89.4 in August following an upwardly
revised growth of 0.2% a month ago, suggesting slow economic growth
in the remainder of 2012. This marks the second monthly gain in
The index, which helps anticipate the waxes and wanes in the U.S.
economy, registered declines in April, May and June. The data
signals positive trends in the construction and light vehicles
The CAB composite index consists of indicators drawn from an array
of chemicals and sectors associated with the production of chlorine
and other alkalies, pigments, plastic resins and other selected
basic industrial chemicals. The index also factors in the stock
data of chemical companies, hours worked in the industry and
The CAB index helps in spotting the trends in the U.S. economy
within sectors such as housing, retail and automobiles that are
closely connected to the chemical industry. It has a positive
correlation with Federal Reserve's Industrial Production
Demand for chemical products takes place early in the supply chain
and changes in chemical production serves as a barometer to gauge
the trends in the broader economy.
With respect to the various components of CAB, the
production-related indicator and inventories remained flat during
August while chemical company equities rose and prices shrank.
CAB's three-month moving average fell 0.6% in August, in line with
July, signaling tepid growth prospects in the months ahead.
The ACC report further reveals sluggish domestic exports and
softness in the production of plastic resins used in consumer and
institutional applications. Beleaguered economic conditions in
Europe coupled with slowing economic activity in some emerging
markets, particularly China, have contributed to the frail overseas
demand for American products.
The chemical industry is among the biggest industries in the U.S.,
a roughly $760 billion enterprise. The industry, by nature, is
cyclical and heavily linked to the overall condition of the U.S.
economy. It has been consistently leading the U.S. economy's
business cycle due to its early position in the supply chain.
The U.S. chemical industry represents roughly 19% of the global
chemicals output. It is responsible for 10% of the nation's
merchandise exports, aggregating $145 billion annually. Chemical
industry also touches 90% of manufactured goods, making the
manufacturing industry the biggest consumer of chemical products.
Chemical companies including majors such as
EI DuPont de Nemours & Co
The Dow Chemical Company
Eastman Chemical Co.
), witnessed slowing economic activity in the June quarter, due to
slow economic recovery in the U.S and fragile economic conditions
in Europe. Activity in China and some other emerging economies
slowed in the quarter.
While the U.S. is yet to reach a healthy growth phase and the
European economy is still in tatters, the emerging markets are
expected to show higher growth in output this year despite the
CELANESE CP-A (CE): Free Stock Analysis Report
DU PONT (EI) DE (DD): Free Stock Analysis
DOW CHEMICAL (DOW): Free Stock Analysis Report
EASTMAN CHEM CO (EMN): Free Stock Analysis
To read this article on Zacks.com click here.