07) Economic Indicators: Durable Goods Report

by · October 16, 2010

What It Is

The Durable Goods Report is created in conjunction with the Factory Orders Report. Of the two, the Durable Goods report is released earlier, typically around the twentieth of the month. The report can be revised within six weeks, and the changes can then be found in the Factory Orders Report. It is released by the U.S. Census Bureau and reflects information gathered in the previous month. Also known as the Advance Report on Durable Goods Manufacturer’s Shipments, Inventories, and Orders, it covers over 4,000 durable goods manufacturers and 85 industries in the country.

Basic Information

The report provides information on the new orders of the above-mentioned industries and manufacturers. Durable goods or capital goods in this report, though, are described as those that are non-cyclical. This means they take a long time to produce. The goods have an expected lifespan of  three years or more, depending on the indicated useful life. Some good examples of durable goods are cars, turbines, and computer equipment.

The figures are better expressed in current dollars, but they exclude orders of durable goods in the defense and transportation, since those can be volatile. The data reflects the changes that occur from the previous month and years in the areas of total shipments, unfulfilled orders, and inventories, as well as new orders. The said change is expressed in percentages.

Revisions are very common in the Durable Goods Report. As mentioned, it can be revised before the release of Factory Orders. It’s also possible that the revisions in the report will cover the last three months if the change can have a significant impact on the results released previously.

How the Report Is Valuable

The report is often used by the Conference Board in coming up with the U.S. Leading Index. If there’s growth in the report, it can be safely assumed that there will be advancement or expansion in the economy.

A positive change in the Durable Goods Report may signal growth at different levels. It signifies that more people are confident about the business condition and the economy. An increase in orders will also indicate higher demand for workers and an increase in non-farm payrolls.

Comparison is also very easy to do. You can compare inventory growth to shipment as well as calculate the ratio between the shipments and inventory at certain periods, the results of which can indicate possible imbalances: supply is higher than demand or vice versa.

The report can also be comprehensive as it can provide good breakdowns of the economy. Determining future earnings can be quite easy.

Things to Watch Out For

It doesn’t present any standard deviation, which you need to calculate the possibility of error. Moreover, the data can be very volatile—a sampling error can cause a huge impact on the figures—compelling you to use moving averages if you want to know the upcoming trends in several months or years.

The investor, nevertheless, can generate a good amount of information for identifying future earnings as well as better outlook on the supply chain.

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