Last summer, I made note of a new economic indicator that could be useful in assembling the mosaic of the market. The American Chemistry Council's Chemical Activity Barometer is an industry-specific measure that can offer in-depth insight on trends in industrial production, similar to others that we track, such as the Baltic Dry Index.
The ACC describes the Chemical Activity Barometer as "a composite index which comprises indicators drawn from a range of chemicals and sectors, including chlorine alkalis, pigments, plastic resins and other selected basic industrial chemicals. It first originated through a study of the relationship between the business cycles in the production of selected chemicals and cycles in the larger economy during the period from 1947 to 2011."
In July, we looked at the CAB and saw that it was decelerating, indicating the potential for a slowdown or contraction in the industrial economy hitting about eight months later. Since then, the data are mixed. The industrial production series as measured by the Federal Reserve shows the following percentage changes:
- August: -0.9
- September: +0.2
- October: -0.3
- November: +1.4
- December: +0.4
- January: -0.1
The chart below shows the latest reading of the CAB. Interestingly, it started to rally late in the year, even as industrial production slowed. However, it started to roll over this month.
The best I can make of this right now is "indeterminate." Certainly, after the uncertainty of the election was over (and before the approaching increases in taxes), there appeared to be a burst of economic activity. The stock market certainly confirmed this, and fourth-quarter GDP was actually OK if you take out government spending. The chart now confirms the uncertainty that has returned to economic activity.
I believe we need to see two more months of this indicator to draw a conclusion about what it says the economy is about to do. Keep an eye on it as events unfold this spring.