What Are Durable Goods Orders?
Durable goods orders represent the total value of new orders received by domestic manufacturers for products designed to last three years or more. This statistic is a closely watched economic indicator within the broader field of economic growth analysis. The U.S. Census Bureau collects and publishes this data as part of its Manufacturers' Shipments, Inventories, and Orders (M3) survey, providing crucial insights into the health and future activity of the manufacturing sector. Durable goods include big-ticket items such as machinery, transportation equipment (like aircraft and automobiles), computers, and appliances. Since these are often significant purchases for consumers and businesses, fluctuations in durable goods orders can signal shifts in consumer confidence and business investment.
History and Origin
The collection of data on manufacturers' shipments, inventories, and orders has a long history, evolving with the complexity of modern economies. The U.S. Census Bureau, a principal agency of the U.S. Federal Statistical System, is responsible for compiling this critical economic intelligence. The Manufacturers' Shipments, Inventories, and Orders (M3) survey, which provides the data for durable goods orders, aims to offer broad-based monthly statistical data on current industrial activity and future production commitments in the manufacturing sector. These detailed statistics are essential for understanding the dynamics of the American economy. The U.S. Census Bureau officially provides information and data related to the Manufacturers' Shipments, Inventories, and Orders (M3) survey on its dedicated website.5
Key Takeaways
- Durable goods orders measure new orders for long-lasting manufactured products, typically those expected to last three years or more.
- This data serves as a key economic indicator, reflecting the strength of the manufacturing sector and overall economic activity.
- Analysts often examine durable goods orders excluding volatile components like transportation and defense to get a clearer picture of underlying trends in business spending.
- An increase in durable goods orders generally suggests rising consumer confidence and expanding capital expenditures.
- The U.S. Census Bureau publishes this data monthly as part of its Manufacturers' Shipments, Inventories, and Orders (M3) survey.
Formula and Calculation
Durable goods orders are primarily a reported value rather than a calculated one based on a simple formula. The U.S. Census Bureau collects data directly from manufacturers on the value of new orders received.
However, related metrics are derived from this data. For instance, the change in durable goods orders is calculated as:
Percentage change is then:
Analysts frequently focus on specific sub-categories, such as "non-defense capital goods orders excluding aircraft," which is often seen as a proxy for business spending plans. This involves subtracting the values of defense-related orders and aircraft orders from the total durable goods orders. The Federal Reserve Bank of St. Louis provides extensive datasets for various components of manufacturers' orders.4
Interpreting Durable Goods Orders
Interpreting durable goods orders involves understanding the implications of changes in the reported values for the overall economy. A sustained increase in durable goods orders typically signals strong demand, indicating that businesses and consumers are willing to make significant long-term purchases. This often precedes an expansion in manufacturing output and can contribute positively to gross domestic product (GDP). Conversely, a decline suggests softening demand, which may lead to reduced production, lower employment, and a slowdown in economic expansion.
Because large, infrequent orders (such as commercial aircraft or defense equipment) can introduce significant volatility, analysts often look at "core" durable goods orders, which exclude transportation equipment and defense capital goods. This adjusted figure provides a smoother, more reliable gauge of underlying trends in private sector capital expenditures and broader economic health. Movements in durable goods orders can also impact stock prices in relevant industrial sectors.
Hypothetical Example
Consider a hypothetical country, Econland. In January, Econland's manufacturers received $200 billion in new durable goods orders. In February, this figure rose to $210 billion.
The month-over-month change is:
The percentage increase is:
This 5% increase in durable goods orders in February suggests a positive trend. If this increase was primarily driven by non-defense capital goods (e.g., new factory machinery), it would indicate that businesses are expanding and investing in future production, potentially leading to job creation and further economic prosperity. If, however, the increase was solely due to a large, one-time aircraft order, the underlying economic trend might be less robust.
Practical Applications
Durable goods orders are a critical data point for various stakeholders in the financial world and beyond.
- Investors: They use durable goods orders as an indicator of future corporate earnings, especially in the manufacturing, technology, and transportation sectors. A strong report can lead to positive sentiment and influence investment decisions.
- Economists and Policymakers: Institutions like the Federal Reserve monitor these orders closely to gauge the health of the economy, predict shifts in the business cycle, and inform monetary policy decisions regarding interest rates. For example, a surge in orders might signal potential inflation pressures, while a decline could suggest a need for stimulus. The Federal Reserve Bank of San Francisco frequently publishes economic letters that analyze various economic indicators, including those related to manufacturing and capital spending.3
- Businesses: Manufacturing firms, their suppliers, and companies involved in the supply chain use the data to forecast future demand, adjust production schedules, and manage inventory levels.
- Analysts and Media: The data is widely reported and analyzed to provide context for economic news and forecasts. For instance, Reuters regularly publishes articles detailing the latest durable goods orders report and its implications for the U.S. economy.2
Limitations and Criticisms
While durable goods orders are a valuable economic indicator, they have certain limitations and face criticisms.
- Volatility: The inclusion of high-value, infrequent orders, particularly for defense and transportation equipment (like commercial aircraft), can lead to significant month-to-month swings in the headline figure. This volatility can obscure underlying trends and make interpretation challenging. For this reason, analysts often focus on "core" durable goods orders, which exclude these volatile components.
- Lagging or Coincident Nature: While often seen as an indicator of future manufacturing activity, the report can also reflect existing economic conditions rather than being a purely leading indicator. Changes in unfilled orders provide additional context by showing accumulated demand.
- Nominal Values: The reported figures for durable goods orders are typically in nominal terms, meaning they are not adjusted for inflation. This can make it difficult to ascertain whether an increase in orders represents a true increase in economic activity or simply higher prices for the same volume of goods.
- Survey-Based: The data relies on survey responses from manufacturers. While comprehensive, it is subject to revisions as more complete data becomes available. The U.S. Census Bureau periodically revises historical M3 data.1
Durable Goods Orders vs. Factory Orders
Durable goods orders and factory orders are closely related economic reports released by the U.S. Census Bureau, but they differ in scope.
Feature | Durable Goods Orders | Factory Orders |
---|---|---|
Scope | Measures new orders for long-lasting manufactured goods (3+ years life expectancy). | Measures new orders for all manufactured goods, both durable and non-durable. |
Release Frequency | An advance report is released monthly, typically around the 25th of the month. | A more comprehensive report, released later in the month, includes revisions to durable goods and adds non-durable goods. |
Volatile Components | Highly susceptible to swings from large aircraft and defense orders. | Still impacted by durable goods volatility, but also includes non-durable goods (e.g., food, textiles). |
Focus | Offers insight into big-ticket capital investment and long-term consumer spending trends. | Provides a broader picture of overall manufacturing demand. |
Durable goods orders are often considered the more impactful of the two initial releases because they reflect significant, long-term investments and purchases, which tend to be more cyclical and indicative of broad economic shifts. Factory orders provide a more complete picture of total manufacturing demand by adding non-durable goods orders, but they often receive less market attention than the earlier durable goods report.
FAQs
What does a rise in durable goods orders signify?
A rise in durable goods orders generally signifies increased demand for long-lasting manufactured products. This is often interpreted as a positive sign for the economy, indicating growing consumer confidence, increased business investment, and potential for future economic expansion and job creation within the manufacturing sector.
How often are durable goods orders reported?
Durable goods orders data is reported monthly by the U.S. Census Bureau. An advance report is typically released first, followed by a more comprehensive Manufacturers' Shipments, Inventories, and Orders (M3) report later in the month, which includes revisions and additional data points such as unfilled orders and inventory levels.
Why do analysts often exclude transportation from durable goods orders?
Analysts often exclude transportation equipment, especially commercial aircraft orders, because these are very large, expensive, and infrequent purchases that can cause significant month-to-month volatility in the overall durable goods orders figure. By excluding these highly variable components, analysts aim to get a clearer and more stable picture of underlying trends in business spending and demand.
Are durable goods orders adjusted for inflation?
No, the headline durable goods orders figures are typically reported in nominal terms, meaning they are not adjusted for inflation. Therefore, an increase in the reported value could be due to higher prices rather than an increase in the actual volume of goods ordered. Economists may use other data, such as the Producer Price Index, to adjust for inflationary effects if needed.
What is the difference between durable goods orders and shipments?
Durable goods orders represent new purchase commitments or requests for products received by manufacturers. Shipments, on the other hand, represent the value of goods that manufacturers have actually delivered during a given period. Orders indicate future production, while shipments reflect current output and sales. A backlog of unfilled orders indicates strong demand that has not yet been met by shipments.