Key Takeaways
- Measures new orders for long-lasting manufactured goods.
- Leading indicator of economic growth or slowdown.
- Reflects manufacturing sector and business investment health.
- Impacts stocks, bonds, and currency markets.
What is Durable Goods Orders?
Durable goods orders measure new purchase orders placed with domestic manufacturers for goods expected to last three years or more, serving as a key economic indicator. This report reflects business investment and consumer confidence, tracking items like machinery, electronics, and vehicles, which influence broader economic trends.
The monthly data, released by the U.S. Census Bureau, includes metrics such as unfilled order backlog and inventory levels, providing insight into manufacturing sector health and future production plans.
Key Characteristics
This indicator offers detailed insights into manufacturing demand through several important data points:
- New Orders: Tracks incoming requests from businesses and consumers for durable goods, indicating future production needs.
- Core Durable Goods: Excludes volatile sectors like transportation equipment to highlight underlying demand trends.
- Capital Goods: Focuses on equipment used in production, a critical component of capital investment and business expansion.
- Backlog: Measures pending orders yet to be fulfilled, signaling future manufacturing workload.
How It Works
Durable goods orders influence economic forecasting by revealing shifts in manufacturing demand before they appear in broader economic data. Rising orders typically signal business confidence and predict increased production and employment.
Investors and analysts often smooth volatile monthly data by examining moving averages or year-over-year changes, as large orders—especially in sectors like defense or transportation—can skew short-term figures. Combining this report with data analytics helps uncover meaningful trends.
Examples and Use Cases
Durable goods orders impact various industries and investment decisions, as shown in these examples:
- Airlines: Companies like Delta rely on durable goods orders data to anticipate demand for aircraft and related equipment, influencing fleet expansion decisions.
- Technology: Rising orders for computers and consumer electronics can signal growth opportunities for firms in the tech sector.
- Investment Strategies: Investors may use durable goods trends alongside guides such as best growth stocks to identify sectors poised for expansion.
Important Considerations
While durable goods orders provide valuable insights, their high volatility and frequent revisions require cautious interpretation. Large, irregular orders can distort monthly figures, so it's crucial to analyze this data alongside other indicators like GDP and unemployment.
Understanding these nuances enables you to better gauge economic momentum and make informed decisions, whether evaluating earnings reports or assessing market conditions for bond or equity investments.
Final Words
Durable goods orders offer an early glimpse into manufacturing activity and economic momentum, making them a valuable signal for your investment decisions. Keep an eye on core and capital goods data in upcoming reports to better anticipate shifts in business investment trends.
Frequently Asked Questions
Durable Goods Orders measure new orders placed with domestic manufacturers for goods expected to last three or more years. They matter because they serve as a leading economic indicator, helping investors and economists forecast manufacturing activity and overall economic health.
The report includes durable goods such as automobiles, aircraft, computers, machinery, home appliances, furniture, and consumer electronics. These goods are typically long-lasting and require significant investment.
A moderately healthy durable goods report generally signals strong corporate profits and can boost stock prices. However, a very strong report might be seen as inflationary, which could have a negative impact on bond prices and influence market reactions.
Headline Durable Goods Orders reflect the total month-over-month change including all sectors, while core Durable Goods Orders exclude volatile transportation equipment like aircraft and autos to provide a clearer view of underlying demand trends.
Investors watch Durable Goods Orders because changes often precede broader economic shifts. Rising orders suggest future economic growth and business confidence, while declining orders may indicate an economic slowdown.
Stronger-than-expected orders are considered inflationary and can cause bond yields and interest rates to rise, leading to lower bond prices. Conversely, weaker orders often lead to bond market rallies and lower interest rates.
Analysts focus on the headline number, core durable goods orders, and capital goods orders, often using three- to six-month moving averages or year-over-year changes to smooth out volatility caused by irregular large orders.
