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Chemicals as a leading economic indicator? If so, things are looking up.

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Chemicals as a leading economic indicator?  If so, things are looking up.

The Chemical Activity Barometer is at its highest point since June of 2008, suggesting upside for the US economy.

According to the American Chemistry Council (ACC), the U.S. economy continues to improve, with forecasts now suggesting economic expansion into 2015.  The barometer, which is derived from a composite index of chemical industry activity, increased 0.4%  over August on a three-month moving average basis. The barometer is up 3.3% over a year ago, with the index itself at its highest point since June 2008.

The logic behind this indicator is based on the chemical industry’s early position in the supply chain of the US economy. According to the ACC, the chemical industry has been found to consistently lead the U.S. economy's business cycle, and the Chemical Activity Barometer has been shown to give earlier and more accurate indications of future economic performance than the National Bureau of Economic Research.  

"This 0.4% jump is a real improvement in growth dynamics from the smaller, yet steady, increases we saw from March through August," said Dr. Kevin Swift, chief economist at the ACC. "The Chemical Activity Barometer is showing a strengthening of some fundamentals, with forecasts remaining positive. Indeed, there is potential for upside surprises in the U.S. economy," he added.  

Swift noted that continued improvements in construction-related plastic resins, coatings, pigments and other chemistry are likely to continue, though at a moderated pace, suggesting that the rapid gains typically seen early in a recovery have given way to a slower pace of growth. Production of plastic resins used in consumer and institutional applications continues to grow at a strong pace, with the potential for even greater acceleration.

Chemical equities far outpaced the benchmark S&P 500; rising about 1.3 times faster, while downstream inventory, new orders, and production also improved.

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