WASHINGTON, Oct 23 (Reuters) - The U.S. chemicals sector grew for a fourth straight month in October, touching its highest level in 1-1/2 years, according to data on Tuesday that suggested a recent acceleration in economic activity could be sustained.
The American Chemistry Council said its Chemical Activity Barometer, which measures activity in the sector, increased 0.6 percent this month to 90.7 -- the highest level since March 2011 and since the ACC began reporting last June.
"This suggests that overall U.S. consumer confidence is improving, and helps to lower the odds of another U.S. recession," said Kevin Swift, chief economist at the ACC.
"That said, the uncertainty arising from the impending fiscal cliff, and the ongoing threat of worsening conditions in Europe or China continue to pose significant risks to any U.S. economic recovery."
The fiscal cliff refers to the $600 billion or so that could be sucked out of the economy via automatic tax hikes and government spending cuts if the U.S. Congress fails to agree on an orderly alternative method of cutting budget deficits.
The gains in the index, which followed a 0.6 advance in September, were driven by rising demand for construction-related plastic resins, coatings and pigments. That was consistent with recent strong gains in residential construction.
Housing starts in September were the highest since July 2008. Outside housing, data on retail sales and industrial production also suggested the economy exited the third quarter with some momentum, a good omen for the fourth quarter.
"The CAB has been signaling this recovery in housing for some time now and our indicators suggest that the outlook for the housing sector will continue to improve into 2013," said Swift.
The index - derived from sales, production, inventories and stock prices among other data - is strongly correlated to the Federal Reserve's industrial production report. It also showed increases in consumer and institutional applications and in retail sales.
Compared to October last year, the index was up 2.8 percent, the largest increase since July last year. The index's three-month moving average, which irons out month-to-month volatility, increased 0.5 percent after gaining 0.4 percent in September.
Demand for chemical products occurs early in the supply chain and changes in production are considered a good indicator of trends in the broader economy. (Reporting By Lucia Mutikani; Editing by Tim Dobbyn)