Core Durable Goods Orders

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 orders 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 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.

Understanding 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, 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 them 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.