What Is The Durable Goods Report And What Does It Mean For Investors Right Now?

Key Takeaways

• The durable goods report measures the demand for long-lasting expensive goods.
• The report can serve as an economic indicator, with rising numbers indicating a strong economy and vice versa.
• Recent reports have seen an increase in orders for durable goods.

Many investors and economists rely on economic indicators and metrics to track the economy and try to predict the direction it’s heading in. One popular economic indicator is the durable goods report, which is published monthly by the U.S. Census Bureau.

This report details levels of industrial activity in the United States and can be helpful for getting information about the manufacturing, transportation, machinery, and technology industries.

What is the Durable Goods Report?

The durable goods report is a monthly economic report that investors and economists use to measure industrial activity in the United States. As its name implies, it reflects orders placed for long-lasting (durable) goods that are manufactured by domestic companies. Typically, durable goods are expensive and can be expected to last for at least three years.

The report is broken down into two releases per month, an advance report on durable goods and information on manufacturers’ orders, inventories, and shipments.

Because durable goods are long-lasting, companies don’t buy them frequently and they can be seen as investments in the future. Things like industrial machinery, airplanes, and computers are all included in the report. Higher order levels indicate higher levels of economic activity and investment.

Types of Durable Goods

You can typically break durable goods into two separate categories.

Consumer durable goods are those bought and used by everyday people. This can include things like furniture, cars, electronics, home goods, or sporting equipment.

Business durable goods are those that get used in industry. Things like machinery, production equipment, business vehicles like trucks, and other long-lasting equipment that businesses use fall into this category.

Consumables, such as food, clothes, and hygiene products are non-durable goods because they are not long-lasting.

How people use Durable Goods Report data

The durable goods report is a measure of demand for long-lasting goods produced in the United States, whether those products are ultimately bound to go to consumers in the U.S. or abroad.

When orders are rising, that means that demand is on its way up. More people want to purchase durable goods produced in the United States. More orders mean a need for more production and can lead to higher levels of employment.

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The durable goods report primarily looks at the manufacturing industry, but higher levels of orders also indicate that businesses in the U.S. are investing in the medium-to-long-term future by buying things like production equipment and vehicles. That can mean these companies expect the economy as a whole to rise.

On the other hand, when order volumes decline, it means that the economy is slowing down. Manufacturers will have lower sales and need fewer workers to keep up with their orders. It also means that other participants in the economy are trying to reduce spending, which can indicate broader economic slowdowns.

The durable goods report can be somewhat volatile because it only looks at monthly data. If a major entity such as the U.S. government places a large order in one month, it can cause a big upswing in the report. Similarly, one canceled contract can cause a downswing.

This volatility means that investors have to dig a bit deeper into the report each month to identify the factors influencing it. It can also be useful to examine which specific industries are seeing increases or decreases in order numbers.

What impacts the Durable Goods Report?

The durable goods report shows the volume of orders for products manufactured in the United States. That means that the most obvious factor impacting the report is the number of orders placed for goods. The more people and companies buy, the larger the numbers in the report.

However, many external factors influence spending and can show up in the report.

For example, economic sanctions can have a big impact on the report. If a foreign nation that serves as a source of important raw materials places sanctions or increases trade tariffs on the U.S., it will impact the report by reducing spending. Even changes in currency values can play a role.

Interest rates can also influence the durable goods reports. Many businesses finance large purchases, such as the purchase of durable goods and machinery. When rates fall, orders could rise. Rising rates might cause a slowdown.

What’s Going on Now?

On October 27th, the Census Bureau published the September advance report on durable goods. The report contained the following information:

• New orders. Up $1 billion (0.4%) to $274.7 billion. This was larger than August’s 0.2% increase.
• Shipments. Up $0.7 billion (0.3%) to $274.2 billion. This was smaller than August’s 1.3% increase.
• Unfilled orders. Up $5.6 billion (0.5%) to $1,137.5 billion. This was similar to August’s 0.5% increase.
• Inventories. Up $1.2 billion (0.2%) to $488.7 billion. This was smaller than August’s 0.3% increase.
• Non-defense capital goods. New orders were up $3 billion (3.5%) to $89.1 billion.
• Defense-related capital goods. New orders were down $2.6 billion (15.8%)

The final report came out on November 3rd and saw monitor adjustments to the numbers above, such as a slight decrease (to 0.3%) for new orders.

Overall, the durable goods report showed a 0.4% increase in new orders. This indicates that the economy is continuing to grow, though potentially at a slow rate. The final report for September was released November 3rd, 2022 and saw some minor adjustments to the figures listed above. The rate of increase in new orders was decreased slightly to 0.3%

How investors use the Durable Goods Report

The durable goods report can serve as an indicator of the economy’s strength. When orders are rising, it shows that the economy is strong while falling orders show a weak economy.

Knowing the direction the economy is heading in is important for investors. When orders are high, investors may want to get more aggressive with their allocation in the expectation that the economy will continue to grow. When the durable goods report slows down, investors may get more cautious.

Keep in mind that the report can be volatile and it isn’t uncommon for new reports to revise numbers issued in previous reports. That means that most people look at averages over multiple months to reduce the impact of volatility and revisions.

Digging into the report to look at which sectors of the economy are having the most impact on the figures can also be helpful for investors. If there is outsized growth in a specific industry, investors might want to focus on companies in that industry.

Bottom Line

The durable goods report is a monthly report issued by the U.S. Census Bureau. The report measures the demand for long-lasting durable goods produced by American companies and can serve as an economic indicator. Investors watching the report can use it to predict the direction of the economy and guide their investment strategy.

Many investors who value the tactile nature of the Durable Goods Report are naturally pulled to value investing like the strategies and analysis behind Q.ai’s Value Vault Investment Kit. It’s the type of thinking that motivates the Warren Buffets of the world – low valuations, high returns on invested capital atop mature, predictable business models.