New Index Tracks Chemicals Sector

A new economic index developed by the American Chemistry Council to track U.S. economic conditions suggests that the economy is in danger of slipping into a recession.

“After a relatively strong start to 2012, the ACC’s Chemical Activity Barometer is signaling a slowing of the U.S. economic recovery,” says T. Kevin Swift, chief economist for the industry group. “As we look at the remainder of 2012, the barometer points to a continued weakness in economic growth in the second half of the year.”

The monthly barometer combines chemical industry measures intended to produce a leading indicator of U.S. economic activity, Swift explains. The index includes production data for industrial chemicals such as chlorine and plastics. Among the other components are stock data for chemical companies, industry workhours, chemical price information, and several broad economic measures such as building permits and new orders.

Preliminary data for June show a 0.9% decline for the index, following a 0.2% decline in May. The index’s 2012 peak was in April. Swift says he has applied the barometer model back to 1947 and can show that it anticipates recession start and end dates, as determined by the National Bureau of Economic Research , by two to 14 months. NBER provides official start and end dates for U.S. recessions.

“Our industry plays a key role as an economic growth engine, and this new leading economic indicator highlights that link between chemistry and the economy,” says ACC CEO Calvin M. Dooley. Just as important is the barometer’s usefulness for the industry’s reputation, adds Patrick Hurston, senior director of member communications and marketing for ACC. Not only is it a valuable tool, it is also “an opportunity for us to raise the profile of the chemical industry,” he says.

Frederick M. Peterson, president of Probe EconomicsProbe Economics, says the barometer could be a useful tool for economists, particularly if it provides as good a lead on recessions as Swift suggests. Still, leading indexes aren’t foolproof. A shock, such as the tsunami experienced last year in Japan, can throw off any economic prediction, Peterson says.