Core Durable Goods Orders

What Are 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 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.

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.

Note that transportation goods are not included in core durable goods as the high value of aircraft and other transportation equipment 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 rather than total durable goods orders. Both, however, are key economic indicators of the health of an economy.

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.

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.

The Bottom Line

Core durable goods orders is a measure of new durable goods orders minus transportation equipment. Durable goods are long-lasting goods (usually three years or more) that do not need to be replaced often, such as washers, refrigerators, airplanes, and other machinery. Transportation is excluded due to the high value of some items, such as airplanes, which could skew the trend if large orders are placed in any given period.

Core durable goods orders is an economic indicator that provides an indication of the current economic environment as well as the future economic environment, as the metric measures new orders to arrive at a later date.