What is the Durable Goods Orders Release?

What is the Durable Goods Orders Release?

Reading time: 6 minutes

Many traders, investors and market analysts rely on a combination of technical and fundamental analysis to track (and trade) markets and the economic picture. 

Undoubtedly, the economy consists of a complex tapestry of economic indicators. While crucial to track growth data (Gross Domestic Product [GDP]), inflation and the jobs market, which are considered tier-1 (potentially high-impacting) data, it is important to acknowledge the standing of second-tier data (moderate impact anticipated in the financial markets), which includes the Durable Goods Orders report. 

What Are Durable Goods?

Durable goods represent long-lasting and (generally) expensive goods; these big-ticket items tend to have an extended shelf life, lasting longer than three years, such as cars and large home appliances. This differs from ‘soft goods’ or ‘non-durable goods’, which have a shorter shelf life and are made up of clothing, footwear, cosmetics and food (perishable goods), for example. 

What is the Durable Goods Orders Release?

Released by the US Census Bureau every month, the Durable Goods Orders release is a survey of more than 3,000 manufacturing companies across 92 industry categories. The businesses within the survey report how many new orders they filled over the course of the previous month. 

It is an important leading indicator for the manufacturing sector and provides a gauge of future economic growth, as new orders feed directly into the calculation of equipment spending in the GDP report. It is thus watched closely by economists and traders.

There are two releases to focus on for Durable Goods Orders. The advance report (released mid-month) concentrates exclusively on durable goods which showcases the total value of new orders placed with US manufacturers as a percentage change from the month prior (along with any revisions to the previous month’s value). The second release reveals revised data and adds more information through the Factory Orders report, usually published the following week. The former garners the majority of the attention in the financial markets, however, as it is essentially the first glimpse the market has of the data. 

Another key point to note is that alongside the Durable Goods Orders release, the Core Durable Goods Orders number is widely monitored, which strips out transportation and defence orders. This is commonly viewed among economists as a large purchase of defence goods can skew the headline number. Additionally, some economists prefer to track a 3–6-month average to filter the data; the release can also be more volatile due to seasonal trends, so year-over-year comparisons are often thought to be more meaningful.

As you can see from the line chart below, a sizeable decline was seen in Durable Goods Orders during the COVID-19 lockdowns. However, new orders swiftly recovered and advanced to north of $US230 billion by mid-2020 and eventually surpassed pre-pandemic levels.

The Durable Goods Orders release breaks down data into several key segments, each offering valuable insights into different aspects of the economy. These include the total value of new orders placed with domestic manufacturers for durable goods, as well as orders that exclude transportation and defence items. This segment is often used to gauge private sector confidence and investment. Among other valuable sections, you will find Durable Goods Categories. The release further disaggregates data by specific groups, such as computers and electronic products, motor vehicles and parts, machinery and fabricated metal products, etc.

How do Investors Monitor Durable Goods Data?

As you can imagine, assessing the number of new orders for durable goods can help reveal whether manufacturing activity is expanding or contracting. A basic example is popular retailers placing large orders for home appliances backed by the confidence that they believe they’ll be able to sell them soon. Therefore, increasing Durable Goods Orders can indicate strong output and increased optimism and thus help bolster the equity market. Conversely, decreasing Durable Goods Orders can spell trouble for the economy (logically, consumers tend to postpone larger ticket purchases in an uncertain economy), which can affect production lines and the labour force and perhaps weigh on stocks. 

Orders for consumer durables like appliances and vehicles indicate consumer confidence and spending patterns. Durable Goods Orders can also shed light on potential bottlenecks or disruptions in the manufacturing and supply chain.

Remember, each segment offers valuable information, but interpreting them in isolation can be misleading. Analysing the complete picture, considering revisions, and comparing it to historical data is crucial for accurate insights into the health of the manufacturing sector and the broader economy.