Weak demand for chemicals signals slower US growth

WASHINGTON, June 26 Tue Jun 26, 2012 11:36pm IST

WASHINGTON, June 26 (Reuters) - Demand for chemical products fell for a third straight month in June, according to new industry data that suggested slower U.S. economic growth for the remainder of 2012.

The American Chemistry Council said on Tuesday its Chemical Activity Barometer fell 1.3 percent to 88 this month. The index, which is being published for the first time, has a high correlation to the Federal Reserve's industrial production report.

It is drawn from a range of chemicals and sectors related to the production of chlorine and other alkalies, pigments, plastic resins and other selected basic industrial chemicals.

The index also includes chemical company stock data and hours worked in the chemicals industry, among others.

Demand for chemical products occurs early in the supply chain and changes in production is considered a good indicator of trends in the broader economy.

"After a relatively strong start to 2012, CAB is signaling a slowing of the U.S. economic recovery," said Kevin Swift, chief economist at ACC. "It also appears to suggest that the long-anticipated U.S. housing market recovery is emerging, but the recovery will be slow."

The index's reading in line with other data showing a moderation in the pace of economic activity.

The index's three-month moving average, which irons out the month-to-month volatility, declined in June for a second month, suggesting anemic growth prospects in the months ahead.

Production-related indicators were flat, while chemical company equity data, hours worked, and inventories fell.

"As we look at the remainder of 2012, the CAB points to a continued weakness in economic growth in the second half of the year," Swift added.

The chemicals industry generated about $760 billion last year. According to Swift, applying the model back to 1947, the index has been shown to provide a longer lead in predicting business cycles than the National Bureau of Economic Research (NBER), by two to 14 months, with an average lead of eight months.

The NBER is the official arbiter of recessions in the United States.

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