What it means
Durable goods are products expected to last at least three years. The report covers things like aircraft, machine tools, computers, cars and household appliances.
In the United States it is published monthly by the Census Bureau, and several other countries publish similar figures. Orders matter because they come before production, shipping and sales.
A company that places an order for new equipment is making a commitment, usually after weighing its outlook for demand. A jump in orders can therefore hint at stronger factory output and investment in the months to come.
The headline figure is volatile. Large, irregular items such as commercial aircraft can swing the total by billions of dollars in a single month, and defence orders add further noise.
For that reason analysts often look at the figure excluding transportation, or at core capital goods orders, which strip out defence and aircraft to give a cleaner view of business investment. Investors, economists and corporate planners use the data in different ways.
Equity investors watch for signs of an economic upturn or slowdown, while manufacturers use it to plan hiring and inventory. Finance teams may use it as one input when forecasting demand for their own products.
The numbers are revised in later releases, so a first estimate can change. They are also usually reported as a percentage change from the previous month, which can be misleading if the previous month was unusually high or low.
Looking at several months together gives a more reliable picture than any single release. The figures are normally adjusted for seasonal patterns, so that a strong December for appliance orders does not look like a boom.
Without that adjustment, ordinary changes such as holiday buying or summer factory shutdowns could be mistaken for real shifts in demand. When reading the report, check whether a figure is seasonally adjusted before comparing it with last year.
In practice
Real-world examples.
Example
An equipment manufacturer reads that orders for machine tools have risen for three months in a row. It decides to add a second shift and hire 20 extra workers. The manager also arranges a short-term credit line to buy materials before the new orders are paid for.
Example
A portfolio manager sees headline durable goods orders fall 4% in a month. Before selling industrial shares, she checks the figure excluding transportation and finds it was flat, so she holds her positions. She notes that a large aircraft order the previous month was the cause of the fall.
Example
A truck dealership group uses the trend in orders for commercial vehicles to plan its stock levels. When orders climb, it raises its purchases from the manufacturer by 10%. If orders turn down, it reverses the plan quickly to avoid being stuck with unsold vehicles.
Formula
Calculation
Monthly percentage change = ((Current month orders - Previous month orders) / Previous month orders) x 100
Worked example: orders for durable goods were $280 billion last month and $287 billion this month.
Change in orders = $287 billion - $280 billion = $7 billion
Percentage change = ($7 billion / $280 billion) x 100 = 0.025 x 100 = 2.5%
A 2.5% rise would normally be read as a sign of strengthening demand, although an analyst would first check whether aircraft or defence orders caused most of it.Case study
Seen in the real world.
Granite Ridge Machinery is a fictional maker of industrial presses. Its finance director, Ms Alvarez, tracked the monthly durable goods orders report alongside her own order book as part of the quarterly forecast.
When the report showed core capital goods orders rising for four straight months, she increased her sales forecast for the following quarter from $18,000,000 to $19,800,000, a rise of 10%. She also asked procurement to order extra steel in advance.
The forecast proved reasonable, and the company avoided late deliveries. This illustrative story also includes a warning: Ms Alvarez based her decision on a trend across several months rather than a single headline number, because one unusually large aircraft order can distort a single month. The forecast was reviewed again each month and adjusted when new data arrived.
Watch out
Common mistakes.
- Reacting to a single headline number without checking whether volatile items such as aircraft or defence orders caused the move.
- Treating orders as sales, when orders are commitments to buy and shipments may happen weeks or months later.
- Ignoring revisions, even though the first estimate is often adjusted in the next release.
Questions
People also ask.
What counts as a durable good?
A product with an expected life of at least three years, such as machinery, vehicles, furniture and appliances.
Why do markets care about this report?
Because orders signal future production, business investment and consumer confidence, all of which affect economic growth.
What is core capital goods orders?
It is a narrower measure that excludes defence and aircraft, giving a clearer view of underlying business investment.
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