Durable Goods Orders Report

Updated on January 28, 2024
Article byPrakhar Gajendrakar
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Durable Goods Orders Report?

The Durable Goods Orders Report is a US monthly economic survey conducted to identify and measure industrial activity, especially the manufacturing of durable goods, prevailing in the US in a given period. It measures the local and international order volume for goods manufactured by domestic companies in the US. Simply put, the report indicates how popular goods manufactured in the US are worldwide, in addition to the US itself.

Durable Goods Orders Report (1)

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A durable goods orders report is a reliable indicator of how well the US manufacturing sector is performing at a given time. It typically considers expensive goods that offer long-term value for money. Once purchased, these goods last at least three years, which is why they are referred to as durable goods. The order levels are directly proportionate to the investment levels—the higher the number of orders, the higher the economic activity. The report is split into two monthly releases, where an advanced report gives information about shipments, production, orders, and inventories. This focused data is a subset of the information in the full report.

Key Takeaways

  • The durable goods orders report is the US monthly economic report highlighting industrial activity and investment in the US for durable goods orders. The production of durable goods against the demand for them can be precisely measured using this indicator.
  • The US Census Bureau publishes the report, and investors use the report as an important metric while predicting economic growth.
  • There are three types of durable goods – consumer durable goods, business durable goods, and nondurable goods.
  • The report is considered volatile as one big order by a substantial organization can tilt the statistics in its favor; similarly, one canceled order can negatively impact the number.

Durable Goods Orders Report Explained

The durable goods orders report is a monthly US order-level survey representing ongoing economic shifts and industrial activity. The US Census Bureau issues the report, readily available on its website to the public. In simple words, it highlights the quantum of durable goods orders placed by people and businesses in the US and the world. It specifically refers to the goods manufactured only by domestic manufacturers in the US.

Durable goods are of two types. The first is consumer goods, such as refrigerators, cars, computers, home appliances, furniture, etc. The second category is business consumer goods, primarily machinery, heavy equipment, business vehicles, trucks, and long-lasting infrastructure tools. Another type is nondurable goods, which comprise food, clothing, cosmetic & personal care products, etc. These goods/items usually last less than three years. While the report only accounts for products manufactured by US companies, whether the manufactured goods are consumed in the US or exported to foreign lands is immaterial.

Investors use the US durable goods orders report to study the growth of different sectors and industries and make economic predictions. It is also a valuable tool used to define the Gross Domestic Product (GDP). The higher the order levels, the better the public spending and cash flow in the economy. Generally, in times of war, recession, or financial crisis, orders decline because people tend to save more than they spend or invest. The same is true for businesses. Investors use it to seek future growth in specific industries and sectors. With this objective in mind, they invest in upcoming projects.

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How To Use Report Data?

Investors use the report data to gauge the domestic production of durable goods and products. When orders rise, it means the market demand is high. Most investors and analysts also link it to more production, which prompts higher employment. When the production of durable business goods increases, it indicates that US companies are investing in medium- to long-term projects, keeping future growth in mind.

In contrast, when the order levels decline, it indicates an economic slowdown. People cease buying durable goods and prefer to save money during adverse economic cycles. It reflects on factors that could have influenced their decisions, such as rising inflation, higher interest rates, debt, recession, or financial crisis. An economy is affected by many factors, and they are interlinked directly or indirectly. When sales are slow, manufacturing is low. Due to this, workers may lose their jobs. Reduced spending means people do not intend to invest. When people stop spending, it affects business sales, and eventually, they also postpone investing in durable business goods.

The durable goods order report today is an important metric that quite precisely reflects the manufacturing scenario in the US. At times, it is considered volatile because it only represents the data for a month. Hence, if a big corporation places a huge order, it will automatically make the report seem favorable and vice versa. Hence, even if these reports are useful, investors must research the markets well before making crucial decisions. They must gather industry data specific to their plans before investing.

Examples

Here are two examples of the durable goods orders report explaining the concept comprehensively.

Example #1

Per the durable goods orders report, the demand for durable goods increased in April 2023, especially due to defense aircraft and parts. The report suggests that revenue of $3.1 billion was posted, which is a rise of 1.1%. The adjusted monthly rise was 3.3% in March 2023. Durable goods from certain other categories saw a decline in demand. Except for transportation goods, the orders for durable goods declined by 0.2%. Only the defense industry saw some level of stability. The orders for other kinds of durable goods fell to 0.6%.

The transportation goods category registered an increase of $97.6 billion, which is an increment of approximately 3.7%. In this category alone, defense aircraft orders grew by about 33%, amounting to around $7.7 billion. In other segments, a 1% increase was seen in machinery orders, while orders for fabricated metal products saw no major shift, maintaining the order volume of $35.5 billion from the previous period.

Example #2

Another example from 2022 shows a change in orders of durable goods similar to the one seen above in 2023. In 2022, the US durable goods orders report reflected a 1.9% hike. The orders increased by 1.9% in June 2022, riding on the back of an 81% hike seen in military aircraft orders. The economists had predicted a decline in order levels by 0.4%.

In 2022, the growth rate was positive for ten out of twelve months. One of the key reasons for this hike was the growth in the US defense and transport industry. However, economists recommended eliminating it from the report to arrive at more realistic numbers called the Core Durable Goods Orders (all the goods used in the economy by individuals and companies).

Importance

The importance of a durable goods orders report cannot be ignored or exaggerated. It helps the US administration and investors in the following manner:  

  • It records order volumes of products manufactured in the US.
  • The report throws light on sales and consumer buying behavior. When people buy more, a proportionate increase in numbers is observed.
  • Investors study it to understand the prevailing market conditions, decode when and where to invest, and understand each sector’s contributions to the US economy.
  • It is used to evaluate the impact of new federal policies and changing interest rates on the market.
  • The report is considered a reliable indicator of the efficiency of supply chain management practices in the US.

Frequently Asked Questions (FAQs)

1. What is included in the durable goods orders report?

The report includes data related to the following:
– Sales figures of durable goods in the preceding month.
– The data captures figures related to business and consumer durable goods manufacturing and the corresponding demand for such items.
– The report showcases varying demand levels, including increased and decreased orders, impacted by market conditions.

2. Is the durable goods orders report the right indicator of growth?

Yes, it is a reliable indicator because it covers both business and consumer durable goods. Since it is published monthly, investors have access to the latest information. As the durable goods orders report shows the direction in which the market is moving, it helps investors plan their investments to secure the maximum possible gains.

3. How does the durable goods orders report affect the economy?

The durable goods orders report measures the production and supply of durable goods produced by domestic companies operating in the US. If the demand is high, the manufacturing is high. It means the economy is growing, and people willingly spend and invest more. If the demand is low, manufacturing activity is low, which may adversely affect the economy by reducing the GDP. If manufacturing is low, supply will be low. When supply is limited, spending goes down, and the cycle continues.

This has been a guide to What Is Durable Goods Orders Report. We explain how to use it, discuss examples, and understand its importance to enable learning. You can learn more about it from the following articles –

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