Understanding the Durable Goods Orders

Durable goods are goods that are not worn out quickly and last for at least three years, such as jewelry, washers, computers, cars, trucks, and home furnishings.

Durable goods orders are new orders placed with domestic manufacturers for factory hard goods.

The number of new durable goods orders is a leading indicator of industrial production and capital spending and tells investors what to expect from the manufacturing sector.

The manufacturing sector is a major component of the economy. A high durable goods number indicates an economy on the upswing,  while a low number indicates a downturn.

The US Department of Commerce usually releases the report at 8:30 AM ET around the fourth week of the month.

The data processed is collected by surveying over 5,000 durable goods manufacturers across 92 industries.

The advance release provides early estimates and is revised about a week later based on the factory orders report.

Investors watch the numbers of durable goods orders closely.

A moderately healthy report for new orders bodes well for corporate profits and the stock market.

Usually, when durable goods orders are weaker than expected, the US dollar will weaken, and the bond market will rally.

When durable goods orders are stronger than expected, the US dollar will rise and the bond market will fall.

However, investors need to analyze the data of several months because it's highly volatile due to the high cost of goods.

The most important thing is 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 manufacturing trend.

Another indicator more closely watched by investors is the number of core durable goods orders.

Core durable goods orders exclude transportation equipment from durable goods orders to control the volatility of large orders of new vehicles like planes, ships, and trains.