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Kimberly Amadeo

Durable Goods Orders Mildly Encouraging

By November 27, 2012

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Business orders for durable goods remained at around $217 billion, after rising 9.9% in September and falling 13.1% in August.  The volatility is due to the largest component of durable goods order, commercial aircraft and specifically Boeing. The company received 11 orders for Dreamliner 787s in September, while August sales were down following the successful Paris Air Show in July.

However, once aircraft orders are taken out, durable goods orders were more promising. In October, this important indicator rose 1.5%, after increasing 1.7% in September and falling 2% in August.

Why are orders for durable goods so important? This leading economic indicator measures business orders for machinery, automobiles and equipment, in addition to aircraft. These orders reflect the confidence that companies have in future economic growth. They will delay orders when they are uncertain.

A look at durable goods order compared to last year is a bit more encouraging. Year-over-year orders are up 8.68%. That means that, while businesses are only slightly more confident than last month, they are feeling a lot better than they did last year. If you remember, that's when we had just escaped a debt default and the jobs report for August was at exactly zero. For a look at the year-over-year data, see Durable Goods Spreadsheet in Google docs.

Shipments of durable goods are another important economic indicator, as they give an early indication of the current quarter's Gross Domestic Product (GDP). Unfortunately, shipments were down .3%, after rising .8% in September and falling 2.9% in August. This probably means that GDP will remain at an anemic 1-2% rate in the fourth quarter. (Source: Census Bureau, Advance Report on Durable Goods, October 25, 2012 )

What This Means for You

Uncertainty around the fiscal cliff and sequestration are dampening business orders. Let's just hope that Congress meets its December 25 goal and resolves the self-imposed crisis. If that happens, expect durable goods orders to improve next year -- especially if the holiday shopping season is as successful as the Black Friday and Cyber Monday trends indicate!

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