WASHINGTON, Aug 21 (Reuters) - Activity in the U.S. chemicals sector rose by the most in five months in August, the latest set of data to suggest a pick-up in the pace of economic growth early in the third quarter.
The American Chemistry Council said on Tuesday its Chemical Activity Barometer (CAB) increased 0.4 percent this month to 89.4 after a revised 0.2 percent gain in July.
The index, which looks at sales, production and stock prices, was previously reported to have been flat in July and is now back to its level in May.
August's reading and the upward revision of July's figure add to other data, such as retail sales and employment growth, that have suggested a modest rise in output after economic activity slowed in the second quarter.
"The August CAB data indicates gradual economic growth, driven primarily by improving equity prices and positive trends in construction and light-vehicle related chemical production," said Kevin Swift, chief economist at the ACC.
Swift said the barometer was tracking patterns observed in 2010 and 2011, when it showed a significant decline in growth during the first and second quarters.
That was followed by gradual recovery and then relatively strong growth in the remaining quarters. Should the pattern hold, the second half of 2012 could see an improvement in growth.
The index, which is 1.1 percent higher than it was a year ago, is strongly correlated 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. It also includes chemical company stock data and hours worked in the chemicals industry, among other things.
Given that demand for chemical products occurs early in the supply chain, changes in production are considered a good indicator of trends in the broader economy.
The index's three-month moving average, which irons out month-to-month volatility, declined for a fourth straight month in August, suggesting steady but slow growth prospects in the months ahead.
Chemical company equities grew this month, while production and inventories were flat. Prices continued to decline.