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The latest monthly report from the American Chemistry Council (ACC) shows yet another monthly slump in the nation’s chemical production. The Washington-based chemical industry trade group said that the Chemical Production Regional Index (CPRI) fell 0.2% in August, following a downwardly revised 0.5% decline in July. The downturn reflects general softness in the overall manufacturing sector, the largest consumer of chemical products.      

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 slipped across Midwest, Southeast, West Coast, Mid-Atlantic and Northeast regions on a monthly comparison basis and was flat in the Ohio Valley. Gulf Coast was the only region where production rose during August.  

Output from the U.S. manufacturing sector was flat in August, following a downwardly revised 0.1% gain a month ago. Within this sector, output rose in several key chemistry end-user markets including motor vehicles, aerospace, computers and electronics, plastic and rubber products, and printing.

The manufacturing sector serves as a barometer to gauge the overall health of the U.S. economy and has a major influence on the chemical industry. The uncertain political environment in the U.S., persistent recessionary conditions in Europe and slowdown in the Chinese manufacturing sector continues to weigh on consumer demand and throttle investment.

The ACC noted that output rose across many segments such as inorganic chemicals, industrial gases, plastic resins, and synthetic rubber. This was, however, masked by declines in a number of key segments including fertilizers, coatings, adhesives, consumer products, organic chemicals, pesticides and pharmaceuticals.

On a year-over-year comparison basis, overall chemical production fell 0.4% in August, representing the first annualized decline in a year. On a region-by-region basis, production dipped across all regions except the Gulf Coast and Ohio Valley areas, both of which saw a gain during the month. On a year-to-date basis (production for the first eight months of 2012 compared with the year-ago data), production edged up 0.2%.

On a monthly comparison basis, chemical production in the Gulf Coast region, where key building block materials are produced, crept up 0.3% in August. The Midwest region witnessed a decline of 0.3%. Production in the Ohio Valley region was flat in August. Output slipped in the Mid-Atlantic (down 0.4%), Southeast (0.3%), Northeast (0.4%) and West Coast (0.6%) 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 96% of manufactured goods, making the manufacturing industry the biggest consumer of chemical products.

A fragile 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, input price inflation and weaknesses across some key end-markets remain the major impediments to growth.

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