What Are Durable Goods Orders?
Let me explain to you what durable goods orders are. This is a broad-based monthly survey run by the US Census Bureau that tracks current industrial activity. Investors use it as a key economic indicator to understand what's happening in the economy.
Key Takeaways on Durable Goods Orders
As I see it, the core of durable goods orders is this monthly survey from the US Census Bureau measuring industrial activity, which investors rely on for economic insights. It gives you more detail on the supply chain than most other indicators, making it particularly helpful for understanding earnings in fields like machinery, technology manufacturing, and transportation. When you see a high number, it points to an economy that's picking up, while a low number suggests things are heading downward.
Understanding Durable Goods Orders
Durable goods orders capture the new orders placed with domestic manufacturers for goods that last three years or more, set for delivery soon or in the future. You get the data through two monthly releases: the advance report on durable goods and the manufacturers' shipments, inventories, and orders. These are expensive items bought infrequently, like computer equipment, industrial machinery, raw steel, steam shovels, tanks, and airplanes—commercial planes are a big part of this for the US economy. Sometimes a huge order in one month can throw off the results, so I recommend looking at the figures excluding defense and transportation sectors for a clearer picture.
How Durable Goods Orders Data Is Used
You should know that durable goods orders serve as a crucial economic indicator for investors and anyone tracking economic health. Since investment prices respond to growth, recognizing these trends is essential. For instance, these orders can show you how busy factories might be ahead, and if they'll need more staff to handle workloads. Businesses and consumers tend to buy these goods when they're optimistic about the economy, so rising orders mean things are improving and could signal higher stock prices. This data lets you anticipate what's coming in the manufacturing sector, a major economic driver, offering better supply chain insights than most indicators. It's especially useful for gauging earnings in machinery, technology manufacturing, and transportation. Keep in mind that capital goods have longer lead times, so new orders help investors assess long-term sales and earnings potential for the companies producing them.
Important Considerations
One thing I want to stress is that durable goods orders data can be quite volatile, and revisions happen often. That's why investors and analysts usually look at averages over several months rather than putting too much weight on a single month's figures.
Special Considerations
On a global scale, manufacturing means trade wars between countries can cause businesses and consumers to cut back on spending for new equipment and appliances. Take American manufacturers that source materials from China or assemble products there—the tariffs or even just the threat of them can psychologically impact businesses, leading to reduced spending.
Example of Durable Goods Orders
Let me give you a real-world example. Boosted by tax cuts and loose monetary policy, durable goods orders hit a peak in December 2007, then dropped sharply by 38% from December 2007 to March 2009. This plunge was tied to the Great Recession, where businesses scaled back on new equipment and tech investments due to lower demand from consumers short on cash.
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