The American Chemistry Council’s (“ACC”) recently released monthly report on its first-of-its-kind economic indicator points to steady, but restrained economic growth in the U.S. next year.
The report shows that the Chemical Activity Barometer (“CAB”), the Washington-based chemical industry trade group’s macroeconomic indicator, crept up 0.1% over a month ago to 93.6 in November on a three-month moving average basis. This follows a 0.3% rise in October, suggesting sustained but conservative growth in 2014.
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 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 index.
The index, which helps anticipate the waxes and wanes in the U.S. economy, registered a 2.8% year over year gain in November and remains at its acme since June 2008.
While the fundamentals of the U.S. economy appear to be healthy, the effects of fiscal impasse in Washington are weighing on domestic economic growth. Following an intense political squabble, the U.S. Senate hashed out a last-ditch deal on Oct 16 that ended the 16-day government shutdown and rescued the nation from a debt default.
The deal would fund the government until Jan 15, 2014, and extend borrowing through Feb 7. However, a long-term budget deal must be hammered out before Dec 13. With the deadline slowly approaching, the U.S. economy has not shown any signs of concern yet, according to ACC chief economist Dr. Kevin Swift.
Swift added that improvement in production-related indicators, healthy equity prices and a recovery in U.S. exports point to a steady economic growth in 2014. Moreover, he noted that healthy retail sales amid the holiday season showcase the correlation between sales and the consumption of polyethylene resins used in packaging.
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.
The roughly $770 billion chemical industry has been consistently leading the U.S. economy’s business cycle due to its early position in the supply chain. The industry is heavily linked to the overall condition of the U.S. economy.
Last year, Europe’s debt predicament, weak U.S. manufacturing along with sluggish activity in China and other key emerging markets weighed on companies in the chemical space including majors such as DuPont (DD), Dow Chemical (DOW), Eastman Chemical (EMN) and Celanese (CE).
While lingering crisis in Europe coupled with other industry-specific challenges continues to pose downside risks, the global chemical industry is expected to fare relatively better this year and the next. Strength across agriculture, automotive and aerospace and a recovery in the housing market augur well for the industry.
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