Today's Report (11/24/2021)

New orders for manufactured durable goods in October decreased $1.2 billion or 0.5% to $260.1 billion, the U.S. Census Bureau announced today. This decrease, down two consecutive months, followed a 0.4% September decrease. Excluding transportation, new orders increased by 0.5%. Excluding defense, new orders increased 0.8%. Transportation equipment, down three of the last four months, drove the decrease, 2.0 billion or 2.6% to $75.3 billion.

Revised September Data

Revised seasonally adjusted September figures for all manufacturing industries were: new orders, $517.1 billion (revised from $515.9 billion); shipments, $513.4 billion (revised from $511.5 billion); unfilled orders, $1,246.6 billion (revised from $1,247.3 billion) and total inventories, $757.6 billion (revised from $756.9 billion).

What Is It?

A key indicator of future manufacturing activity. Durable goods are items that have a life expectancy of 3 or more years (PCs, autos, aircraft, and communications equipment).
It serves as a sneak preview of more comprehensive factory orders which includes durable and nondurable goods that are released a week later.

Data is obtained from over 4300 manufacturers representing 89 industries. Firms with at least $500 million in annual shipments are asked for figures on new orders, shipments, unfulfilled orders, and inventories.

US Core Durable Goods Orders

This excludes transportation items because aircraft orders are very volatile, this core number release gives a better gauge of ordering trends.

Why Is It Important?

Durable goods orders are a key economic indicator for investors and others monitoring the health of economies. Because investment prices react to economic growth, it is important for investors to be able to recognize these trends. Orders for durable goods, for example, can provide information on how busy factories may be in the future and whether they'll likely need to employ more or less staff to get through current workloads.

Businesses and consumers generally buy durable goods when they are confident the economy is improving, so an increase in these orders signifies an economy trending upwards. It can also be an indicator of future increases in stock prices.

What Are The Fundamental Effects?

A jump in orders is a positive sign because it suggests that factories and employees will remain busy and they work to satisfy this demand from customers. A persistent decline in orders could be viewed as a troubling omen, that assembly lines might fall silent, leaving workers little to do.

Why Investors Care?

Economists closely watch nondefense capital goods orders as a leading indicator of capital spending. Typically, traders follow the special series for nondefense capital goods excluding aircraft because it shows the underlying trend for equipment investment after discounting sharp swings from aircraft orders.

Durable goods orders are measured in nominal dollars. Economic performance depends on real, rather than nominal growth rates. One can compare the trend growth rate in durable goods orders with that of the PPI for finished goods to assess the growth rate in real orders.

Durable goods orders data can often be volatile and revisions are not uncommon, so investors and analysts typically use several months of averages instead of relying too heavily on the data of a single month.

How Does It Affect The Markets?

CURRENCY - Foreign investors might balk if durable goods reports suggest evidence of an over-heating economy.

STOCKS - A jump in orders is typically viewed as favorable because it could lead to higher corporate profits, however, if the economy is already at peak operations, it might unnerve stock investors who might fear that the bond market will drive interest rates sharply higher.

BONDS - Should orders come in higher than expected it could pummel bond prices and kick up yields.

The bond market will rally (fall) when durable goods orders are weak (strong). A moderately healthy report for new orders bodes well for corporate profits and the stock market, however. Durable goods orders are one of the most volatile economic indicators reported in the month and this series can be revised by significant amounts from one month to the next. More than any other indicator, it is imperative to follow either three-month moving averages of the monthly levels or year-over-year percent changes. These adjustments smooth out the monthly variability and provide a clearer picture of the trend in the manufacturing sector.