U.S. chemical production continues its monthly declining streak as reflected in the recently released data by the American Chemistry Council (“ACC”). The Washington-based chemical industry trade group said, on July 2, that the Chemical Production Regional Index (CPRI) fell 0.3% in May, following a downwardly revised 0.5% decline in April.

The U.S. CPRI, which was created by Moore Economics to track chemical production in seven regions nationwide, is comparable to Federal Reserve’s industrial production index for chemicals. The CPRI is measured using a three-month moving average. The ACC reported that chemical production fell across all regions in the U.S. on a month-to-month basis while was flat in year-over-year comparisons.

Output from the U.S. manufacturing sector, the largest consumer of chemical products, nudged down 0.1% in May, following a 0.3% gain a month ago. Within this sector, output in several key chemistry end-user markets rose, including structural panels, computers, apparel, motor vehicles and machinery.

Demand for U.S. manufacturing has weakened in recent months given the ongoing European predicament and slowdown in the Chinese manufacturing sector. The group noted that output clipped in a number of key segments including pharmaceuticals, organic chemicals, inorganic chemicals, industrial gases, plastic resins, pesticides, adhesives and other specialties. However, production rose across many segments with consumer products, synthetic rubber, coatings and fertilizers clocking the biggest gains.

On a year-over-year comparison basis, overall chemical production remained flat in May. On a region-by-region basis, production declined across all regions except the Gulf Coast and Ohio Valley areas. On a year-to-date basis (production for the first five months of 2012 compared with the year-ago data), production crept up 0.3%.

On a monthly comparison basis, chemical production in the Gulf Coast region, where key building block materials are produced, was down 0.4% in May. The Midwest region also saw a decline of 0.4%. Both the Ohio Valley and Mid-Atlantic regions witnessed a 0.3% decline in May. Production also slipped in the Southeast (down 0.5%), Northeast (0.3%) and West Coast (0.4%) regions during the month.

The chemical industry is among the biggest industries in the U.S., a roughly $760 billion enterprise. The industry, by nature, is cyclical and heavily linked to the overall condition of the U.S. economy. It has been consistently leading the U.S. economy’s business cycle due to its early position in the supply chain.

The U.S. chemical industry represents roughly 19% of the global chemicals output. It is responsible for 10% of the nation’s merchandise exports. Chemical industry also touches 90% of manufactured goods, making the manufacturing industry the biggest consumer of chemical products.

For 2012, the outlook for the global chemical industry is balanced, as the U.S. and European Union continue to contend with soft local economies and debt constraints, while the emerging markets are expected to show rapid growth in output.

A soft operating environment in Europe continues to weigh on the companies in the chemical space including majors such as EI DuPont de Nemours & Co ( DD - Analyst Report ) , The Dow Chemical Company ( DOW - Analyst Report ) , Eastman Chemical Co. ( EMN - Analyst Report ) and Celanese Corporation ( CE - Analyst Report ) . Moreover, high input costs and weaknesses across some key end-markets (such as construction and electronics) remain the major impediments to growth.

The ACC foresees moderate production growth this year followed by a stronger recovery in 2013. A rebound across most of the key end-use markets is helping to maintain the industry's contribution to the nation’s economic growth.