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#Post#: 264--------------------------------------------------
Durable Goods Orders
By: fxvictory Date: December 10, 2014, 9:33 pm
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Definition
Durable goods orders reflect the new orders placed with domestic
manufacturers for immediate and future delivery of factory hard
goods. The first release, the advance, provides an early
estimate of durable goods orders. About two weeks later, more
complete and revised data are available in the factory orders
report. The data for the previous month are usually revised a
second time upon the release of the new month's data.
Durable goods orders are available nationally by both industry
and market categories. A new order is accompanied by a legally
binding agreement to purchase for immediate or future delivery.
Advance durable goods orders no longer include data on
semiconductors since semiconductor manufacturers stopped
releasing this information to the Census Bureau.
The advance durable goods report also contains information on
shipments, unfilled orders and inventories. Shipments represent
deliveries made, valued at net selling price after discounts and
allowances, excluding freight charges and excise taxes.
Semiconductor data are available for shipments and inventories.
Unfilled orders are those received but not yet delivered.
In 2001, the Census Bureau shifted from the standard industrial
classification (SIC) system to the North American Industrial
Classification System (NAICS). This caused some realignment of
major industry classifications. Given the significant revisions
incurred, the historical data now begin in 1992.
Why Investors Care
Investors want to keep their finger on the pulse of the economy
because it usually dictates how various types of investments
will perform. Rising equity prices thrive on growing corporate
profits - which in turn stem from healthy economic growth.
Healthy economic growth is not necessarily a negative for the
bond market, but bond investors are highly sensitive to
inflationary pressures. When the economy is growing too quickly
and cannot meet demand, it can pave the road for inflation. By
tracking economic data such durable goods orders, investors will
know what the economic backdrop is for these markets and their
portfolios.
Orders for durable goods show how busy factories will be in the
months to come, as manufacturers work to fill those orders. The
data not only provide insight to demand for items such as
refrigerators and cars, but also business investment such as
industrial machinery, electrical machinery and computers. If
companies commit to spending more on equipment and other
capital, they are obviously experiencing sustainable growth in
their business. Increased expenditures on investment goods set
the stage for greater productive capacity in the country and
reduce the prospects for inflation.
Durable goods orders tell investors what to expect from the
manufacturing sector, a major component of the economy, and
therefore a major influence on their investments.
Importance
Durable goods orders are a leading indicator of industrial
production and capital spending.
Interpretation
The bond market will rally (fall) when durable goods orders are
weak (strong). A moderately healthy report for new orders bodes
well for corporate profits and the stock market, however.
Durable goods orders are one of the most volatile economic
indicators reported in the month and this series can be revised
by significant amounts from one month to the next. More than any
other indicator, it is imperative to follow either three-month
moving averages of the monthly levels or year-over-year percent
changes. These adjustments smooth out the monthly variability
and provide a clearer picture of the trend in the manufacturing
sector.
Whenever economic indicators are particularly volatile, it
becomes customary to exclude the more variable components from
the total. For instance, market players exclude defense orders
and transportation orders from durable goods because these
fluctuate more than the overall total. Incidentally, aircraft
orders are the guilty culprit, which are included in both of
these categories. Airplanes are ordered in quantity, not one at
a time. Analysts exclude the categories containing aircraft
orders because they obscure the underlying trend, not because
the aircraft industry is unimportant.
Economists closely watch nondefense capital goods orders as a
leading indicator of capital spending. Typically, traders follow
the special series for nondefense capital goods excluding
aircraft because it shows the underlying trend for equipment
investment after discounting sharp swings from aircraft orders.
Durable goods orders are measured in nominal dollars. Economic
performance depends on real, rather than nominal growth rates.
One can compare the trend growth rate in durable goods orders
with that of the PPI for finished goods to assess the growth
rate in real orders.
Frequency
Monthly
Source
Bureau of the Census, U.S. Department of Commerce.
Availability
Usually during the fourth week of the month.
Coverage
Data are for the previous month. Data for June are released in
July.
Revisions
Yes.
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