Durable Goods Report - Will Recession Be Avoided?

January'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 4.9% in January when compared year-over-year. This is the most encouraging report since last September, when durable goods orders were down 6%. (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 a 5.3% decline since December. However, January's orders have been less than December's for the last four years, despite economic growth. That's why I use year-over-year comparisons, which do a better job of predicting the GDP report, which is also year-over-year. (See Durable Goods Spreadsheet in Google docs)

Why are durable goods orders so important? 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 economic 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. The next most important report is the Employment Report, to be released this Friday, March 7.

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