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Durable Goods Related LinksA Primer on the Role of Supply in the U.S. EconomyA Primer on Interest Rates What Is a Recession? Durable Goods Related Web SitesMost Recent Durable Goods ReportDurable Goods SummaryDurable Goods History Durable Goods OrdersWhat the Durable Goods Orders Report Measures: Durable goods are the long-lasting, more expensive items mostly used by businesses. The report measures orders for things like computer equipment, industrial machinery and raw steel. It also includes really expensive items, such as steam shovels, tanks and airplanes. If a large order for some of these items comes through one month, it can skew the month-to-month results. For that reason, many news releases show the durable goods order stripped of some combination of defense and/or transportation. However, the month-to-month changes in durable goods is not nearly as effective in predicting a trend as the year-over-year changes. That’s because GDP, the measurement of the economy’s performance, is measured against last year. When the durable goods orders are compared to the same time last year, it is a very good predictor of the GDP growth report that comes out when the quarter ends. For that reason, this article only discusses year-over-year trends. This is different from most news releases, which report month-to-month changes. Why the Durable Goods Orders Report Is Important: If durable goods orders are up, then you have a better chance of asking for that raise, and your stocks and mutual funds will probably increase. That’s because businesses are confident, the money is rolling in for new orders, and the next quarterly GDP report will be upbeat. If durable goods orders are trending down, then you might want to think about looking for another job, updating your skills, and increasing the percentage of cash or bonds in your retirement portfolio. That’s because orders are dropping off, and the GDP report will not look too optimistic when it comes out. This could cause a stock market shock, fears of recession, and further slowing of the economy. Recent Durable Goods Orders Trends: The last economic downturn started in Q3 2000, when GDP declined .5%. The economy did not really come out of that slump until Q2 2003. That's when GDP growth broke above the 3% mark, remaining there until Q4 2005 and Hurricane Katrina.
Durable goods orders closely mirrored that trend. In fact, in Q4 2005 orders remained high, forecasting the GDP rebound in Q1 2006. Since then, however, durable goods has slowly declined, even showing a decline in February and March of 2007. This forecast the economy's slow growth in Q1 2007 to 1.6%. In Q2 2007, durable goods orders grew 5% in April, 2% in May and 0% in June, which predicted the upward growth in GDP of 3.8%. In Q3 2007, durable goods orders grew 10% in July, 4% in August and dropped 6% in September, also predicting growth in GDP of 4.8%. In Q4, durable goods orders grew 2% in October, .2% in November and 2% in December.(See Google Spreadsheet) This would point to an increase in GDP in Q4 of between 1 - 2%. In fact, Q4 GDP was .6%. The Durable Goods Orders Outlook: Since durable goods is such an early indicator, there is really very little other data that would predict where it will go. A decline in the Fed Funds rate will hopefully provide enough liquidity to enable businesses to keep purchasing durable goods, despite fears of a recession. Perhaps the ongoing dollar decline will increase exports, helping domestic manufacturers.
Durable Goods Related LinksA Primer on the Role of Supply in the U.S. EconomyA Primer on Interest Rates What Is a Recession? Durable Goods Related Web SitesMost Recent Durable Goods ReportDurable Goods SummaryDurable Goods History |
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