What is Core Durable Goods Orders
Core durable goods orders refers to new orders for U.S. core durable goods, which are the total durable goods orders, excluding transportation equipment. The new orders numbers are closely followed by market participants as they provide indications on current economic conditions as well as future production commitments in the manufacturing sector. The new orders data is collated by the U.S. Census Bureau in its monthly manufacturers' shipments, inventories and orders (M3) survey, which covers manufacturing establishments with $500 million or more in annual shipments.
BREAKING DOWN Core Durable Goods Orders
Core durable goods orders are comprised of durable goods, which are goods that do not wear out quickly or have a lifespan of more than three years, and include a wide range of items including computer equipment and industrial machinery, trains, planes and automobiles.
However, transportation equipment is specifically excluded from core durable goods orders because of the high value of aircraft and other transportation equipment. An influx of large orders in one month can skew the monthly numbers and make it difficult to ascertain the underlying trend.
How Core Durable Goods Data is Used
Durable goods orders are a key economic indicator of the health of economies. Because investment prices react to economic growth, it is important for investors to be able to recognize trends in the growth of the economy. Orders for factory hard goods, for example, can provide information on how busy factories may be in the future. Orders placed in current months may provide work in factories for many months to come as they work to fill the orders.
Companies tend to purchase durable goods infrequently. They include machinery and equipment, such as computer equipment, industrial machinery, and raw steel. Durable goods also include aircraft and other transportation equipment, and if a large order for some of these items comes through one month, it can skew the month-to-month results. For that reason, many analysts will look at durable goods orders, excluding defense and transportation sectors. This key distinction of core durable goods data vs. durable goods data.
Businesses and consumers generally place orders for durable goods when they are confident the economy is improving. An increase in durable goods orders signifies an economy trending upwards. It also be an indicator of future increases in stock prices. Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy.
By contrast, the manufacturing lead time on capital goods takes longer on average, so new orders are often used by investors to gauge the long-term potential for sales and earnings increases by the companies who make them.