New Orders for Durable Goods: What Kind of Economic Indicator?

Economic indicators are statistical data points that provide insights into the health and direction of an economy. These measures help to assess current economic conditions, predict future trends, and understand the impact of various events. Among these indicators, “new orders for durable goods” offers a forward-looking perspective on economic activity, particularly within the manufacturing sector, helping economists, investors, and policymakers gauge underlying economic momentum.

Defining New Orders for Durable Goods

Durable goods are manufactured products designed to last for three years or more. These items represent significant purchases for both consumers and businesses, ranging from household appliances and automobiles to industrial machinery and aircraft. Examples include factory hard goods, computer equipment, and large vehicles.

The term “new orders” in this context refers to future demand and commitments for manufacturing production, rather than reflecting current sales or completed goods. These orders signify a manufacturer’s booked business for products yet to be built and delivered.

Analysts often distinguish between defense and non-defense orders, as large, irregular defense contracts can introduce volatility into the overall numbers. A particularly important sub-category is “core capital goods,” which specifically includes non-defense capital goods excluding aircraft. This refinement helps to present a clearer picture of underlying business investment trends by removing the impact of large, often sporadic, aircraft orders.

Classification as an Economic Indicator

Economic indicators are typically classified into three main types: leading, lagging, and coincident. Leading indicators signal future economic activity, such as stock market performance or new housing permits. Lagging indicators reflect economic changes that have already occurred, like the unemployment rate. Coincident indicators provide a real-time snapshot of the current economic state, such as retail sales or industrial production.

New orders for durable goods, especially the non-defense capital goods component, is widely considered a leading economic indicator. This classification stems from the nature of the orders themselves, representing commitments for production that will occur in the future.

Therefore, an increase in these orders suggests that businesses are planning to invest and expand, and consumers anticipate stable income, well before these plans translate into actual production, hiring, or overall economic growth. This makes the durable goods report a key barometer for anticipating shifts in the economic landscape.

Significance and Interpretation

Economists, investors, and policymakers closely monitor the new orders for durable goods report due to its predictive power. An increase in new orders generally suggests growing business confidence and an anticipation of future economic expansion. This can indicate increased capital expenditure by businesses, which often precedes job creation and broader economic growth.

Conversely, a sustained decrease in new orders for durable goods can signal weakening demand and increased caution among businesses and consumers. This trend might precede an economic slowdown or a period of reduced investment and production.

Analysts typically focus on underlying trends and month-over-month changes rather than isolated data points. The headline number for durable goods orders can be volatile due to large, infrequent orders for items like aircraft or defense equipment. For this reason, many observers pay particular attention to the “non-defense capital goods excluding aircraft” component, as it offers a more stable measure of business investment.

Data Collection and Reporting

The data for new orders for durable goods is compiled and released monthly by the U.S. Census Bureau. This information is part of their Manufacturers’ Shipments, Inventories, and Orders (M3) survey. The report is typically released around the fourth week of the month following the reference month.

The U.S. Census Bureau collects this data through surveys sent to a panel of thousands of manufacturing companies across various industries. The survey gathers statistics on the value of new orders, along with shipments, unfilled orders, and inventories. The report offers detailed breakdowns across different sub-categories, including transportation equipment, primary metals, and the closely watched non-defense capital goods excluding aircraft.

The initial release, often called the “advance report,” provides preliminary estimates, which may be revised in subsequent reports as more complete data becomes available. These revisions are a standard part of economic data collection to ensure accuracy.