What it means
Economists split what households buy into durable goods, non-durable goods and services. Durables sit at one end of that range because they are expensive, last for years and can be postponed.
Food and fuel are non-durable, while a haircut is a service. The ability to postpone is what makes durables important.
When people feel uncertain about jobs or interest rates, they delay replacing a car or buying a new sofa, but they still buy food. This makes spending on durables swing more sharply than other spending, and it is one reason economists treat it as a leading signal of the economy.
Durables are also closely tied to credit. Because they cost a lot, many are bought on finance, so higher interest rates make them more expensive in monthly terms and can slow sales.
Cheaper credit has the opposite effect. For businesses, durables bring particular accounting and planning questions.
A manufacturer of durables must manage long production cycles, warranties and inventory, while a business that buys durable equipment records it as a fixed asset and spreads its cost over its useful life through depreciation (the gradual write-off of an asset's cost). Warranty obligations for durable products can also create liabilities that need to be estimated.
The line between durable and non-durable is a matter of convention. Official statistics generally use the three-year rule, so a product that lasts two and a half years would be classed as semi-durable or non-durable.
Companies that sell durables often add services, such as maintenance contracts, to smooth out their revenue between sales. Durables also create a used market that competes with new sales.
A well-kept second-hand car or appliance can serve for years, so manufacturers must think about trade-in schemes, resale values and the pace at which they release new models. These factors affect pricing and inventory decisions in a way that rarely applies to everyday consumables.
In practice
Real-world examples.
Example
A household appliance retailer notices that fridge and washing machine sales drop sharply when mortgage rates rise. Customers repair old machines instead of replacing them, so the retailer reduces its stock orders. It also promotes repair services and extended warranties to keep customers spending while sales of new machines are slow.
Example
A car manufacturer sells vehicles with a five-year warranty. Its finance team sets aside a provision for expected repair costs, because durable products create obligations that continue long after the sale. The estimate is reviewed each year against actual claims and adjusted if repairs cost more than expected.
Example
A cafe chain buys espresso machines costing $9,000 each that are expected to last six years. The machines are recorded as fixed assets and depreciated rather than expensed immediately. Each year the cafe records $1,500 of depreciation per machine, calculated as $9,000 divided by six years.
Case study
Seen in the real world.
Hearthstone Furniture is a fictional maker of sofas and dining tables. During a period of economic worry, its sales fell 25% while a nearby grocery store saw almost no change. The managing director, Mr Pereira, wanted to understand why.
His finance manager explained that furniture is a durable good, so customers can postpone it for a year or two at little cost. The company responded by offering 12 months of interest-free instalments, which brought buyers back by making a $2,400 sofa feel like a $200 monthly commitment.
This illustrative story shows how durable sellers must manage both the economic cycle and customer financing. By the following year, sales had recovered to within 5% of their earlier level. Mr Pereira concluded that offering finance, not cutting prices, was the best way to win back customers in a weak market.
Watch out
Common mistakes.
- Assuming that durable and non-durable spending behave in the same way, when durable purchases are far more sensitive to confidence and interest rates. Forecasts that treat them alike tend to overstate demand in a downturn.
- Expensing a long-lasting asset in one go instead of capitalising it and depreciating it over its useful life.
- Forgetting after-sales obligations such as warranties, which can create costs and liabilities long after the sale. Leaving them out overstates profit in the year of sale.
Questions
People also ask.
What is the usual definition of a durable good?
A product expected to last at least three years under normal use.
Is a car a durable good?
Yes, cars are one of the most common examples, along with appliances, furniture and equipment. Because they last for many years, buyers can delay replacing them when money is tight.
Why do durables matter to economists?
Because spending on them rises and falls sharply with confidence and credit conditions, so it often signals turning points. Economists therefore follow orders and sales of durables closely.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related