Durable Goods Orders Forecast Slowing Economy

Despite a brief uptick in July and August, this month's Durable Goods Orders Report shows weakness in the U.S. economy. The Bureau of Labor Statistics (BLS) reported that business orders for machinery, computer equipment, and the like only increased 2% in October when compared year-over-year. This followed a 6% decline in September. The downward trend began October 2006, which also showed negative year-over-year numbers in February and March.

By the way, most articles you read compare this month to last month, which showed a downward trend. I use year-over-year, which does a better job of predicting the GDP report, which is also year-over-year. (Source: Report on Manufacturer's Orders, Advance Report, Table 1, seasonally adjusted figures.)

Why are durable goods orders so important? Well, since they represent the orders for big ticket items, businesses will hold off making the purchases until they are confident in the economy. Furthermore, increasing orders mean increasing production. And that is good for GDP growth. That's why the Durable Goods Order report is generally considered a leading indicator.

What This Means for You

The current Subprime Mortgage Crisis has created a general lack of confidence in the economy. Stay tuned for the employment report, due on December 7, which is also another good leading indicator.