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Fundamental Analysis |
Durable Goods Orders
Definition Durable goods orders reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods.
ImportanceDurable goods orders are a leading indicator of industrial production and capital spending.
Why do Investors Care?Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market doesn't mind growth but is extremely sensitive to whether the economy is growing too quickly and paving the road for inflation. By tracking economic data like durable goods orders, investors will know what the economic backdrop is for these markets and their portfolios.
Orders for durable goods show how busy factories will be in the months to come, as manufacturers work to fill those orders. The data not only provide insight to demand for things like refrigerators and cars, but also business investment going forward. If companies commit to spending more on equipment and other capital, they are obviously experiencing sustainable growth in their business. Increased expenditures on investment goods sets the stage for greater productive capacity in the country and reduces the prospects for inflation. That tells investors what to expect from the manufacturing sector, a major component of the economy and therefore a major influence on their investments.
Interpretation The bond market will rally (fall) when durable goods orders are weak (strong). A moderately healthy report for new orders bodes well for corporate profits and the stock market, however. Durable goods orders are one of the most volatile economic indicators reported in the month and also revised by significant amounts. More than any other indicator, it is imperative to follow either three-month moving averages of the monthly levels or year-over-year percent changes. These adjustments smooth out the monthly variability and provide a clearer picture of the trend in the manufacturing sector. |
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Frequency Monthly.
SourceBureau of the Census, U.S. Department of Commerce.
Availability Usually during the fourth week of the month.
Coverage Data are for the previous month. Data released in June are for May.
Revisions Monthly, data for the prior two months are revised to reflect more complete information. Annually, new seasonal adjustment factors are introduced. This revision affects at least three years of data. The magnitude of the revision can be substantial. |
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