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Durable Goods Orders: What are They and How Do They Affect Financial Markets?

Durable Goods Orders: What are They and How Do They Affect Financial Markets?

Warren Venketas, Analyst

Durable goods orders are often discounted by market participants and traders alike but, this article aims to emphasize the importance of this economic data print by going through the definitions, basic economic principals and its impact on trading financial markets.

What are Durable Goods Orders?

Let’s first look at what exactly are durable goods. Durable goods entail products/items that are hard wearing in nature and are long lasting. This means that these types of goods do not need to be ordered on a frequent basis. Durable goods make up part of the broader consumer goods category and contribute directly to core retail sales data.

The U.S. durable goods orders metric is a monthly release conducted on a survey basis by the U.S. Census Bureau measuring new orders for durable goods from U.S. companies. The statistical release is split over two separate issues namely the advance report on durable goods and the manufacturers’ shipments, inventories and orders.

Examples of Durable Goods Orders

By definition, durable goods are costly items that last for a period greater than three years and include items such as:

  • Equipment
  • Appliances
  • Furniture
  • Mobile homes
  • Bicycles
  • Automobiles
  • Electronics

Non-Durable Goods Order Definition

Contrary to durable goods, non-durable goods naturally speak to goods that have a shorter lifespan with a quicker manufacturing and delivery time frame (less expensive). These items are utilized almost immediately before they expire and last between a few minutes up to three years. A few examples of non-durable goods involve:

  • Food
  • Soap
  • Drinks
  • Detergents
  • Cigarettes
  • Pharmaceuticals

Non-durable goods also called ’soft goods’ are less correlated with GDP as opposed to durable goods (pro-cyclical), largely due to the fact that orders for durable goods can be deferred by households if income is constrained, leading to manufacturers delaying capital goods purchases.

How to Use Durable Goods Orders Data in Trading?

Orders for durable goods act as a barometer for economic health within a country and because these goods take time to be manufactured and delivered, they can be used as a ‘forward guidance’ type tool around the future of the economy. For example, if buyers/investors are wary about the economic capability in the U.S. then they may look elsewhere for opportunities thus weighing negatively on the durable goods orders report. A lower print on the report could then suppress upside on the U.S. dollar as seen in the chart below:

DOLLAR INDEX (DXY) VS U.S. DURABLE GOODS ORDERS (2017 -2022)

DOLLAR INDEX (DXY) VS U.S. DURABLE GOODS ORDERS (2017 -2022)

Source: Refinitiv

From an equities perspective, U.S. durable goods orders also track associated industries as stated in the aforementioned examples. The chart comparison below shows two leading U.S. manufacturers of durable goods (Ford and Boeing) and their share price relative to the U.S. durable goods orders report (green).

FORD MOTOR CO. & BOEING CO. VS U.S. DURABLE GOODS ORDERS (2017 -2022)

FORD MOTOR CO. & BOEING CO. VS U.S. DURABLE GOODS ORDERS (2017 -2022)

Source: Refinitiv

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Are Durable Goods Orders a Leading Indicator?

We can see from the above DXY chart that in recent times, the USD and durable goods orders share a largely positive correlation however, it is important to note that correlation does not always mean causation. That being said, when it comes to durable goods orders and their physical disposition of being a forward looking measure, it can be seen or classified as a leading indicator. One can gauge the optimism around the economy by the orders for durable goods as well as an insight into the overall supply chain. Any disruptions within the supply chain may be exposed by a lower durable goods orders figure and from a trading perspective, could highlight an area that has been previously overlooked.

Durable Goods Orders: A Summary

Durable goods orders are vital amongst the wide spectrum of key economic data points that traders look to for clues into the health of the U.S. economy. The durable goods orders release serves as a high impact event for good reason and can be monitored on the DailyFX economic calendar.

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