By Ryan Barnes

Release Date: On or around the 20th of the month (advance release; revised release about six weeks after period end with Factory Orders)
Release Time: 8:30am Eastern Standard Time
Coverage: Previous month
Released By: U.S. Census Bureau
Latest Release: http://www.census.gov/indicator/www/m3/adv/

Background
The Advance Report on Durable Goods Manufacturer's Shipments, Inventories and Orders, or the Durable Goods Report, provides data on new orders received from more than 4,000 manufacturers of durable goods, which are generally defined as higher-priced capital goods orders with a useful life of three years or more, such as cars, semiconductor equipment and turbines.More than 85 industries are represented in the sample, which covers the entire United States.

Figures are provided in current dollars along with percentage change from prior month and prior year for new orders, total shipments, total unfilled orders (orders that have been booked but not filled as of month-end) and inventories. Revisions are also included for the prior three months if they materially affect prior-released results.

The data compiled for consumer durable goods is one of the 10 components of the Conference Board's U.S. Leading Index, as growth at this level has typically occurred in advance of general economic expansion.

What it Means for Investors:
The headline figure will often leave out transportation and defense orders, as they can show higher volatility than the rest of the areas. In these industries, the ticket prices are sufficiently high that the sample error alone could swing the presented figure significantly.

It is useful for investors not only in the nominal terms of order levels, but as a sign of business demand as a whole. Capital goods represent the higher-cost capital upgrades a company can make, and signals confidence in business conditions, which could lead to increased sales further up the supply chain and gains in hours worked and non-farm payrolls.

Investors can play with the numbers here and look at things such as the rates of growth of inventories versus shipments; changes in the inventory/shipments ratio over time can point to either demand (falling ratio) or supply (rising ratio) imbalances in the economy.



Because capital goods take longer on average to manufacture than cyclical goods, new orders are often used by investors to gauge the likelihood of sales and earnings increases by the companies who make them. For instance, a company like Boeing could make revenue adjustments on the upside based on strong new order growth, signs of which could be gleaned from the Durable Goods Report. In addition, when production and capacity at U.S. manufacturers is rising, it helps to combat inflationary pressure, as more goods will be produced for consumer purchase.

Investors should be cautious to see through the high levels of volatility found in areas of the Durable Goods Report. Month-to-month changes should be compared with year-over-year figures and year-to-date estimates, looking for the overall trends that tend to define the business cycle.

Strengths:
  • Good industry breakdowns
  • Data provided raw and with seasonal adjustments
  • Provides forward-looking data such as inventory levels and new business, which count toward future earnings.
Weaknesses:
  • The survey sample does not carry a statistical standard deviation to measure error.
  • Highly volatile; moving averages should be used to identify long-term trends

The Closing Line
The Durable Goods Report gives more insight into the supply chain than most indicators, and can be especially useful in helping investors get a feel for earnings potential in the most represented industries: machinery, technology manufacturing and transportation.

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