Economic Indicators: Durable Goods Report

“The Advance Report on Durable Goods Manufacturer's Shipments, Inventories and Orders,” or the Durable Goods Report, provides data on new orders received from more than 4,000 manufacturers of durable goods, which are generally defined as higher-priced capital goods orders with a useful life of three years or more, such as cars, semiconductor equipment and turbines. More than 85 industries are represented in the sample, which covers the entire United States. The report is issued monthly by the Census Bureau of the U.S. Department of Commerce.

Why the Durable Goods Report is important

Orders for durable goods are an important leading economic indicator. Businesses and consumers generally place orders for durable goods when they are confident the economy is improving. A durable goods report showing an increase in orders is a sign that the economy is trending upwards. This can be a sign of gains in the stock market.

Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy.

Capital goods take longer on average to manufacture than cyclical goods, new orders are often used by investors to gauge the potential for sales and earnings increases by the companies who make them.

The Durable Goods Report gives more insight into the supply chain than most indicators, and can be especially useful in helping investors get a feel for earnings potential in the most represented industries: machinery, technology manufacturing and transportation.

A weak durable goods report will generally lead to a decline on the bond market.

As a cautionary note, the data can be volatile and revisions following the issuance of the report are not uncommon. Investors and analysts are wise to use several month’s averages instead of relying too heavily on a single month’s worth of data.

Strengths of the Durable Goods Report:

•          Provides good industry breakdowns
•          Data is provided both raw and with seasonal adjustments
•          Provides forward-looking data such as inventory levels and new business, which count toward future earnings.

Weaknesses of the Durable Goods Report:

•          The data can be highly volatile; moving averages should be used to identify long-term trends.