Chemical activity and trade still strong

The American Chemistry Council's Chemistry Activity Barometer continued to rise in its latest April release. This index has been a good coincident at at times leading indicator of both industrial production and overall economic growth, and it continues to point to rising industrial production and continued growth of the US economy. At the same time, there is a growing body of evidence that points to increased global trade, at a time when industrial commodity prices have been rising significantly.

The Chemical Activity Barometer rose 5.2% in the past 12 months, one of its strongest showings in seven years (the strongest being the year ended March, when it rose 5.6%).

This indicator almost always goes flat or declines in advance of recessions. Currently it points strongly to continued expansion.

This indicator has been a good leading indicator of growth in industrial production and economic activity in general. Currently it points to a substantial increase in industrial production in coming months.

As the chart above shows, US goods exports have been rising for the past year, and that is corroborated by a sharp increase in outbound container shipments from the ports of Los Angeles. It's notable that US exports to China rose over 20% in the year ending February, after contracting over most of the 2014-16 period. Japan reports double-digit growth in both imports and exports in the year ending March, after declining over most of the 2015-16 period. According to the Netherlands Bureau for Economic Policy Analysis, the volume of global trade rose at an 8% annualized pace in the six months ended January 2017. Expanding global trade is an excellent indicator of improving economic conditions worldwide. Very encouraging.

Rising prices for industrial commodities over the past year or so—at a time when the dollar has been rising—tell us that global industrial activity has generally exceeded the expectations of commodity producers. Also very encouraging.

Yet despite the good global news, the US economy seems still to mired in mediocrity (i.e., 2% growth). That's not necessarily inconsistent with global strengthening, since trade is much less important to the US economy than it is to most other economies. But improving global fundamentals nevertheless provide strong underlying support for activity here.

It's premature to worry about a US downturn, and it's not unreasonable to remain optimistic that things will improve. It pained me today to learn that Trump wants to impose a 20% tariff on imports of Canadian softwood, since all that does is make life more expensive for US residents (UPDATE: Read Mark Perry's excellent critique of Trump's tariff here). But I'm encouraged that he seems pointed in a positive direction in the area of tax reform, and that there is important progress being made on healthcare reform.