Durable Goods Orders Report Signals Hope for Economy

December's Durable Goods Orders Report offers a ray of sorely-needed hope for the U.S. economy. The Census Bureau reported that business orders for machinery, computer equipment, and the like increased 2% in December when compared year-over-year. This followed a .2% increase in November, and a 2% increase in October. This could be a reversal of a downward trend that began in October 2006, which deepened into negative numbers in February, March and September of this year. (Source: Census Bureau, Report on Manufacturer's Orders, Advance Report, Table 1, seasonally adjusted figures)

By the way, most articles you read compare this month to last month, which showed an upward trend as well. I use year-over-year, which does a better job of predicting the GDP report, which is also year-over-year. (See Google Spreadsheet)

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 one of the more important leading indicators.

What This Means for You

The current Subprime Mortgage Crisis has created a general lack of confidence in the economy. Many analysts are concerned about a possible recession in 2008. When the economy is at an inflection point, as it is now, it is important to watch the important economic indicators to get a sense of the trend. Two are being released this week: the Advance GDP report on January 30, and the Employment Report, on February 1.