Market players and traders often undervalue durable goods orders. Still, this article seeks to highlight the significance of this economic data print by going through its definitions, fundamental economic principles, and effects on the trading of financial markets.
DURABLE GOODS ORDERS: WHAT ARE THEY?
Let’s first examine what constitutes a durable good. Products and objects that are long-lasting and hard-wearing are considered durable goods. This indicates that orders for these items can be placed infrequently. The core retail sales figures directly benefit from durable goods, a component of the larger consumer goods category.
The U.S. Census Bureau measures new orders for durable goods from U.S. enterprises every month via a survey known as the “U.S. durable goods orders metric.” The two independent issues of the statistics release are the advance report on durable goods and the manufacturers’ shipments, inventory, and orders.
DURABLE GOODS ORDER EXAMPLES
Durable goods, which are expensive commodities that endure for more than three years, include things like:
- Mobile homes
DEFINITION OF NON-DURABLE GOODS ORDER
Non-durable goods, in contrast to durable ones, have a shorter lifetime and a speedier manufacture and delivery schedule (less expensive). These things endure from a few minutes to three years and are used practically immediately before going bad. Examples of non-durable items include the following:
Non-durable products, commonly known as “soft goods,” have a lower correlation with GDP than durable goods (pro-cyclical), partly because households may delay orders for durable items if income is limited, which causes manufacturers to postpone the acquisition of capital goods.
HOW CAN DURABLE GOODS ORDERS DATA BE USED IN TRADING?
Because durable products require time to create and deliver, orders for them may be used as a “forward guidance” tool for the economy’s future. Orders for durable goods serve as a gauge of a nation’s economic health. For instance, if purchasers or investors are concerned about the U.S. economy‘s capacity, they could turn elsewhere for possibilities, hurting the data on durable goods orders. The following graphic illustrates how a lower print on the report can limit future gains for the U.S. dollar:
DOLLAR INDEX (DXY) VS US ORDERS FOR DURABLE GOODS (2017 -2022)
As seen in the cases above, U.S. durable goods orders also follow related industries from an equity standpoint. The following graphic compares the share prices of Ford and Boeing, two prominent American producers of durable goods, with the data on U.S. durable goods orders (green).
Boeing and Ford Motor Company vs. U.S. Durable Goods Orders (2017 -2022
ARE ORDERS FOR DURABLE GOODS A LEADING INDICATOR?
The following DXY data shows that there has been a strong positive connection between the USD and durable goods orders in recent years. Still, it’s crucial to remember that correlation does not necessarily imply causation. This being the case, durable goods orders may be seen or categorized as a leading indication due to their physical disposition as a forward-looking metric. Orders for durable products and a look at the whole supply chain may be used to determine how optimistic the economy is. A decreased durable goods orders number might reveal any supply chain interruptions and, from a trade standpoint, could draw attention to a previously unnoticed problem area.
A summary of DURABLE GOODS ORDERS
Among the many important economic data indicators that traders use to infer the state of the U.S. economy, orders for durable goods are crucial.