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Kimberly Amadeo

Durable Goods Still in Slump

By June 11, 2009

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The Durable Goods Orders Report shows that manufacturers continue to struggle due to the recession. The Census Bureau reported that business orders for machinery, computer equipment, and the like decreased 25% in April when compared year-over-year. The worst drop in the 2001 recession was a 20% decline in June 2001. (Source: Census Bureau, Report on Manufacturer's Orders, Advance Report, Table 1, seasonally adjusted figures)

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. Therefore, decreasing orders mean decreasing production, which has led to a slowdown in GDP growth. That's why the Durable Goods Order report is generally considered one of the more important leading economic indicators.

By the way, most articles you read compare this month to last month, which showed a .2% decrease since March. However, year-over-year comparisons do a better job of predicting the GDP report, which is also year-over-year. (See Durable Goods Spreadsheet in Google docs)

What This Means for You

The current recession has slowed foreign economies, which has slowed orders for U.S. exports. In addition, investors had put money into cash, increasing the value of the dollar and making U.S. exports more expensive. Continue to watch the important economic indicators to see when the economy may start to turn up again.

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