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Kimberly Amadeo

Business Orders Down - But Better Than Last Month

By November 25, 2009

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For the seventh month in a row, the critical economic indicator - manufacturers' orders for Durable Goods - was trending better. Business orders for things like computer equipment, industrial machinery and airplanes were only 10% worse than the prior year in October, according to the Census Bureau. This is better than September (down 17% year-over-year) and August (down 19%).

So, business orders are down from last year, but at least not down as much as last month. This is a good thing. 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 will report that October Durable Goods Orders decreased .6% since September. I prefer year-over-year comparisons. They 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

Growing unemployment means Americans are spending less, which is further slowing manufacturing. This further increases unemployment, as companies cut costs to stay in business. Continue to watch the important economic indicators to see if this trend is confirmed.

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