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Kimberly Amadeo

Durable Goods Orders Show Economy Still Firmly in Expansion

By January 28, 2013

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Manufacturers' orders for durable goods rose a welcome 4.6% in December, to $230.7 billion. This was a huge increase over November's orders, which were up just .7%.

Although not a well-known as the employment report, the durable goods report is an important leading economic indicator.  Why? Durable goods are actually long-lasting business equipment, such as machinery, automobiles and aircraft.  Since this report focuses business orders, not consumer purchases, it's an early indication of how confident businesses are in the economy.  If they think we are headed for a recession, they will delay ordering this expensive durable goods.

December's orders, just like September's 9.9% jump,  were buoyed by aircraft orders. Aviation Capital Group (ACG) ordered $6 billion worth from Boeing, despite the problems with the 787 Dreamliners. ACG bought 60 737 MAX airplanes. This product has been very successful for Boeing, bringing in more than 1,000 orders to date.

Year-over-year, durable goods orders were up 7.34%. That's been about the average for the last year, and supports that the business cycle is solidly in the expansion phase. For calculations, see Durable Goods Spreadsheet in Google docs.

Durable goods shipments rose 1.3% in December, similar to November's 1.8% increase. Shipments are a lagging indicator because they occur once the product has already been ordered and built. However, they do contribute to the quarterly Gross Domestic Product (GDP) report. Based on the past quarter's durable goods report, I expect Q4 GDP (out Wednesday) will be around 2% - barely within the healthy growth range.. (Source: Census Bureau, Advance Report on Durable Goods, December 28, 2013 )

What This Means for You

January's stock market rally is confirming what we already knew -- the economy has been growing despite last year's uncertainty around the fiscal cliff.  Congress is now focused on gun control. This is an important issue, but probably not one that will hold the economy hostage. Now that debates over the debt ceiling and sequestration have been postponed for a few months, expect continued economic growth for the first quarter of 2013.

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Photo: Boeing 737 MAX

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