The Durable Goods Orders is a US economic indicator that measures the value change of new orders for durable goods by US manufacturers in a given month compared to the previous month.
The US Census Bureau collects this data by a survey and publishes it monthly. This survey includes over 5,000 manufacturers of durable goods that represent 92 industries.
The indicator calculation includes all new orders confirmed by mandatory legal documents (contracts, letters, checks, etc.). Canceled orders are not included in the report.
What Is a Durable Good?
Generally, a durable good is a good that lasts more than three years. Examples of durable goods are cars, appliances, equipment, etc.
Here are some features of a durable good:
- A durable good lasts more than three years. In other words, it does not wear down quickly;
- It yields utility for its lifetime; and
- It is expensive.
A durable good buyer pays more money than a non-durable good to buy it. Expect it to last long with less maintenance costs and yield utility without inconvenience.
Thus, the buyer considers the economic condition before buying it. That is why it is an important indicator.
Economic Impact of Durable Goods Orders
The Durable Goods Orders index guides us to understand the future of the manufacturing sector. Durable goods included in this index are produced by the USA companies that can be exported or bought by American companies.
Businesses place orders for durable goods if they are confident of the economy and do their analysis before placing orders. They do their analysis because durable goods production takes more time than non-durable goods.
When orders of durable goods rise, so does production. An increase in production leads to employment and economic growth. The opposite happens if orders are declining.
Orders for industrial machinery help us to predict the industrial sector in the coming months. They are investments. For example, a growth in Durable Goods Orders reading indicates that the manufacturing sector is getting stronger and is a sign of hope for the future economic condition.
That is why the Durable Goods Orders indicator is a leading economic indicator of the manufacturing sector. Investors use this report to prepare a forecast for near-term industrial production such as engineering, technology industries, and even GDP growth, unemployment rate, and other economic indicators.
As mentioned earlier, this index is published monthly. Because it is volatile, investors use several months’ average in their analysis.
Generally, a reading better than expected has a positive impact on the USD in the Forex market and the US stock market. Conversely, a lower reading has a negative impact.
Core Durable Goods Orders
The core durable goods orders index is the same as durable goods orders, excluding transportation goods.
Or,
Core durable goods orders = durable goods orders – transportation goods
In this index, transportation is excluded because of the high price of aircraft and other transportation equipment and not being sold very frequently.
Bottom Line
The Durable Goods Orders is a US economic indicator reporting orders for goods that last at least three years.
Investors use this report to predict economic and the USD directions.
However, it is volatile. So, investors use an average of several months to use in their analysis.
A higher reading than forecasted means an improvement in the manufacturing sector and vice versa. Thus, a better reading may have a positive impact on the US stock market and the USA.
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