Materials sector exchange traded funds could stuck in a rough patch as chemical industry activity slows.
The Chemical Activity Barometer (CAB), which tracks production, inventory and selling prices of numerous chemicals, along with prices of chemical stocks, only rose 1.8% in August year-over-year, the slowest pace since 2012, reports Anthony Feld for Bloomberg.
Kevin Swift, chief economist for the American Chemistry Council and creator of the CAB index, warned that declines in chemical demand have historically preceded drops in industrial output.
“Recent declines in the chemical barometer, in part, reflect a stronger U.S. dollar and weaker growth abroad,” Swift told Bloomberg.
Swift argues that the chemical index’s recent weakness indicate that the pace of manufacturing could slow into 2016 – about 95% of manufactured goods are made from chemicals. Additionally, the chemical index leads the National Bureau of Economic Research’s peak business cycle by an average of eight months and its troughs by an average of four months.
Year-to-date, the Materials Select Sector SPDR (NYSEArca: XLB) declined 14.1%, Vanguard Materials ETF (NYSEArca: VAW) decreased 14.2% and iShares U.S. Basic Materials ETF (NYSEArca: IYM) dropped 17.9%.