Durable Goods Orders

Durable goods orders is an economic indicator released monthly by the Bureau of Census that reflects new orders placed with domestic manufacturers for delivery of factory hard goods (durable goods) in the near term or future. Durable goods orders come in two releases per month: the advance report on durable goods and the manufacturers' shipments, inventories and orders.

Durable goods orders are a key economic indicator for investors and others monitoring the health of economies. Because investment prices react to economic growth, it is important for investors to be able to recognize trends in the growth of the economy. Orders for factory hard goods, for example, can provide information on how busy factories may be in the future. Orders placed in current months may provide work in factories for many months to come as they work to fill the orders.

Durable goods are expensive items that last three years or more. As a result, companies purchase them infrequently. They include machinery and equipment, such as computer equipment, industrial machinery, and raw steel. They also include expensive items such as steam shovels, tanks, and airplanes. In fact, commercial planes make up a significant component of durable goods for the U.S. economy. If a large order for some of these items comes through one month, it can skew the month-to-month results. For that reason, many analysts will look at durable goods orders, excluding defense and transportation sectors.

Businesses and consumers generally place orders for durable goods when they are confident the economy is improving. An increase in durable goods orders signifies an economy trending upwards. It also be an indicator of future increases in stock prices. Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy.

By contrast, the manufacturing lead time on capital goods takes longer on average, so new orders are often used by investors to gauge the long-term potential for sales and earnings increases by the companies who make them.

Durable goods orders are published in the Durable Goods Report. It provides more insight into the supply chain than most indicators, and can be especially useful in helping investors understand the earnings in industries, such as machinery, technology manufacturing and transportation.

A weak durable goods report will generally lead to a decline on the bond market. However, data can often be volatile and revisions of durable goods orders reports are not uncommon. Investors and analysts typically use several months of averages instead of relying too heavily on the data of a single month.