Durable goods orders are orders for products that are intended to last three years or more. This is one among many metrics tracked by the government to provide meaningful information on the current health of the economy. Normal fluctuations in the business climate make comparisons from month to month less useful, but comparing between years can provide important information about the movement of the economy.
When durable goods orders are up, it suggests that the economy is doing well. Consumers are making purchases like major appliances and cars, while companies are placing orders for big ticket items like aircraft and heavy equipment. This leads to a healthy projection for the manufacturing sector, as it will be responsible for filling these orders and restocking products that have sold.
Decreases in durable goods orders suggest that there is some economic uncertainty and people are nervous about committing to major expenses. Companies may hold off on purchases in favor of repairs or limiting expansion if they believe that the market is not healthy, while individual consumers will not buy durable goods when they are concerned about their financial futures. Thus, durable goods orders can become a very strong economic indicator not just for the manufacturing sector, but also for the economy as a whole.
Typically statistics on durable goods orders are released towards the end of the month. The data is broken down by industry to avoid skewing the numbers with industries that are experiencing spikes or slumps. Defense spending in particular is separated out, as defense purchases tend to be large and very expensive and as a result, they can cause the statistics to appear off. A fighter jet, for example, is a far more costly purchase than a washing machine.
Historic statistics are available from government agencies that track economic growth. People can compare current months to months in previous years and they can also chart the influence that durable goods orders have on the gross domestic product (GDP). This information is used to make economic projections that will be utilized in the development of economic and monetary policy, ranging from legislation to promote manufacturing sector growth to increases in interest rates in response to a robust economy.
While the media often reports durable goods orders in the form of comparisons to orders for previous months, people should keep in mind that comparisons between years are more meaningful. A change from July to August may be a reflection of any number of things, while marked differences from August to August provide more important information.
