What Are Core Durable Goods Orders?
Core durable goods orders refer to new orders for U.S. core durable goods, which are the total durable goods orders excluding transportation equipment. The new order numbers are closely followed by market participants as they provide indications of current economic conditions, as well as future production commitments in the manufacturing sector.
The U.S. Census Bureau collates the new orders data in its monthly manufacturers' shipments, inventories, and orders (M3) survey, which covers manufacturing establishments with $500 million or more in annual shipments.
- Core durable goods orders are orders of goods with an expected useful life of at least three years, excluding transportation equipment.
- Core durable goods orders exclude transportation equipment in order to control the volatility of large single orders of new vehicles such as airplanes, ships, and trains.
- Common core durable goods include factory hard goods, computer equipment, and industrial machinery.
- Core durable goods new orders are watched by businesses, investors, and economic policymakers as an indicator of the current and near-term health of the economy.
- 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.
- The U.S. Census Bureau collates the new orders data in its monthly manufacturers' shipments, inventories, and orders (M3) survey.
Understanding Core Durable Goods Orders
Core durable goods orders are comprised of durable goods, which are goods that do not wear out quickly or that have a lifespan of more than three years, and include a wide range of items including computer equipment, industrial machinery, trains, planes, and automobiles. 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 one month may provide work in factories for many months in the future as they work to complete the orders.
Companies tend to purchase durable goods infrequently. Durable goods include machinery and equipment, such as computer equipment, industrial machinery, and raw steel. Durable goods also include aircraft and other transportation equipment; 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. For that reason, many analysts will look at core durable goods orders, which exclude the transportation sector. This is the key distinction between core durable goods data versus durable goods data.
How Core Durable Goods Data Is Used
Core durable goods orders are used as an indicator of the current and near-term future health of the economy by businesses, investors, and policymakers. Core durable goods new orders may signal psychological optimism or perceived uncertainty.
Durable goods often take some time to build to completion and get into the hands of the final users, so the order data may signal ongoing sustained economic activity at least over the time horizon of the interval it takes to make, distribute, and get them into operation.
Durable goods tend to represent a large share of big-ticket discretionary spending at the consumer level—and tend to be more sensitive to credit conditions since they are often financed—so the data may also indicate a willingness to spend and lend for discretionary purposes.
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 can 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.
What Is Included in Durable Goods?
Durable goods include washers, dryers, dishwashers, computers, televisions, refrigerators, cars, trucks, other electronics, machinery, tools, and semiconductors. Durable goods are those that are not purchased frequently as they last a long time.
What Are Capital Goods?
Capital goods are the goods that companies use to make products that they then sell to the public. Types of capital goods include buildings, machinery, vehicles, large tools, and equipment. Capital goods are not finished goods but are used to make finished goods, as such, they are not purchased by the average consumer.
What Is the Difference Between Durable Goods and Non-Durable Goods?
Durable goods are those that generally last for more than three years and do not need to be replaced frequently. These goods include cars, washers, and dryers. Non-durable goods are those that do not last long and do need to be replaced frequently, such as food and drinks.