Durable goods are expensive items that last three years or more. Businesses and consumers only buy these big-ticket items when they feel confident about the economy. When they are not sure, they put off buying durable goods until things get better.
The Bureau of Economic Analysis (BEA) measures durable goods as part of its quarterly U.S. gross domestic product report. It's an important component of GDP. The BEA releases the current GDP statistics report for each quarter.
Types of Durable Goods
There are three types of durable goods, according to the BEA.
Consumer Durable Goods
Consumer durable goods are the items bought by households and individuals that last three years or more. They include automobiles, appliances, furniture, tableware, tools and equipment, sports equipment, luggage, telephones and electronics, musical instruments, books, and jewelry. The category also includes some intangible products such as software.
Business Durable Goods
Examples of durable goods used by businesses are machinery and equipment. Some are similar to consumer durable goods, such as computers, telephones, and automobiles. It includes furniture used by the business, including any that landlords rent to tenants.
Durable goods used by businesses also include industrial equipment such as engines, metalworking machinery, and electrical transmission apparatus.
Business durable goods also include trucks, buses, boats, and aircraft. In fact, commercial aircraft is a large component of durable goods.
Nondurable goods last less than three years on average. The BEA includes food, pharmaceuticals, tobacco, clothing, household supplies, personal care products, magazines, and gasoline in this category.
Durable Goods Orders Report
Orders and shipments of durable goods are reported by the BEA monthly. Orders for durable goods are an important leading indicator. When these orders increase, it means that businesses and consumers are expecting the economy to improve. It also means you have a better chance of asking for a raise or having better returns on your stocks and mutual funds.
When durable goods orders trend down, you should think about looking for another job or updating your skills. You might also increase the percentage of cash or bonds in your retirement portfolio. When orders drop off, economic growth is not far behind. The GDP growth report could also be down, causing stock market declines and recession.
Current Durable Goods Orders
Orders for durable goods decreased by 0.4% in September 2021. New orders are up 23.4% year-over-year.
There was a 27.9% monthly decrease in new orders for defense aircraft and parts. This follows a large increase of 63.9% in August. New orders for non-defense capital goods decreased by 4.2%.
Capital goods orders, excluding aircraft and defense orders, increased by 0.8% in September and are up 16% year-over-year.
Capital goods excluding defense orders are machinery and equipment used in everyday business. This gives a better picture of real business spending. It removes the effects of large orders for defense, commercial aircraft, and automobiles. If a large order for some items comes through one month, it can skew the month-to-month results.
For that reason, it helps to look at the capital goods orders report without defense and transportation. This signals how much business confidence has increased or decreased in the past 12 months. Comparing this month's numbers to last year removes the influence of seasonality.
Manufacturers' shipments of durable goods are also important. However, shipments aren't a leading indicator. Instead, they tell you how many orders manufacturers have already shipped.
Shipments of durable goods increased by 0.4% in September. There has been an increase of 13.6% year-over-year.
Durable goods shipments are a component of GDP. The economy contracted 5.1% in the first quarter of 2020, kicking off the 2020 recession. It contracted a record 31.2% in Q2 of 2020 and increased by 33.8% in Q3 as businesses reopened following the pandemic. The GDP increased 4.5% in Q4, 6.3% in Q1 2021, 6.7% in Q2 2021, and 2% in Q3 2021.
How the Durable Goods Orders Report Predicts the Future
The Durable Goods Orders Report first warned of the 2008 financial crisis in March 2007. It showed that orders were lower than the prior year. Steady declines in durable goods orders didn't occur until March 2008. Durable goods orders were down more than 20% year-over-year between December 2008 and July 2009.
The first clue that the economy was getting better was in October 2009 when durable goods orders were "only" down 23% from the prior year.