In November, business orders for durable goods rose .7% to $221 billion. This increase was welcome, although it's a slower growth rate than in October, which increased 1.1%. September saw a whopping 9.9% jump, thanks to 11 orders for Boeing Dreamliner 787s. November's orders weren't driven by aircraft, but by $1 billion worth of machinery orders, a 3.3% increase.
Orders for durable goods is a leading economic indicator. What are durable goods? They are the long-lasting goods that businesses need to operate, like machinery and equipment, automobiles and aircraft. This report focuses business orders, not consumer purchases. Therefore, it is an early indication of the confidence that companies have about future economic growth. They only order these expensive, long-lasting items when they feel certain there will be no recession.
Year-over-year, orders for durable goods were up 6.22%. That's about right for an economy that's in the expansion phase of the business cycle. To see the calculations, go to Durable Goods Spreadsheet in Google docs.
Shipments of durable goods in November was up 1.5%, following October's lackluster .1% increase. Shipments aren't as much a leading indicator because they occur well after the product has been ordered and manufactured. However, shipments are included in each quarter's Gross Domestic Product (GDP). If shipments continue to rise in December, then the fourth quarter GDP report should continue at it's current 2-3% healthy growth rate. (Source: Census Bureau, Advance Report on Durable Goods, November 22, 2012 )
What This Means for You
Fortunately, businesses are ordering what they need despite the fiscal cliff uncertainty. An increase in machinery is good, since you don't want economic growth to be so reliant on Boeing's airplane orders. Expect that, once the fiscal cliff is resolved (and most analysts think we will get a deal), then durable goods orders will continue to rise even more.
Related Articles
- Durable Goods as a Component of GDP
- Other Leading Economic Indicators
- 2012 Fiscal Cliff Negotiations
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