Durable Goods Orders(Indicator of Future Manufacturing Activity)

Web: www.census.gov/indicator/www/m3/adv/Major revisions covering prior 2 months.

Durable goods are products with a 3-year life expectancyIncludes high-priced discretionary consumer products.

Advance Durable Goods Report surveys 3,500 manufacturers representing 89 industry categories.Data is collected on New Orders, Shipments, Unfilled Orders, Inventories.Numbers reported are nominal dollars, seasonally adjusted but not annualized

Real growth rate = Durable order growth rate – producer price index growth rate.

Strip out defense goods – (tanks, guns, ammo, aircraft, ships, missiles, computers) - and aircraft to get an accurate reading of business sector demand.

Capital goods orders – equipment, machines, robotics etc. purchased by firms and used to make other products.

Non-defense capital goods (Core capital goods orders) – best leading indicator of business investment spending.

Shipments – ordered products that are being delivered. Coincident economic indicator – measure of current economic activity.Shipments = production – D inventory

Unfilled orders – indicator of manufacturing resources strain.

Production Process bottlenecks: unfilled orders => investments => plant capacity => industrial infrastructure => workers/ wages => DY/Y => DP/P

D Unfilled Orders = New Orders – Shipments unfilled orders (strong production and/or decline new orders) => future factory/employee activity => (DY/Y)t+1

Leading indicator: new orders for 3-4 months =>(3-6 months) future factory/employee activity => (DY/Y)t+1

Inventories: Important with John Maynard Keynes Aggregate Expenditure ModelIf production > new orders, then either unfilled orders or unplanned inventories => future production/output => (DY/Y)t+1

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Market Analysis:

Bonds: new orders (excluding defense & aircraft) => manufacturing sector => DY/Y => DP/P => DBonds => iBonds

Stocks: new orders => profits => PStocks

Dollar: new orders => manufacturing sector => DY/Y => DP/P => DBonds => iBonds => dollar

New Orders

Unfilled Orders

Shipments = Production – D Inventory

Durable Goods Orders & Shipments (Dollar Value of Orders and Shipments)

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

$ M

i.l (

SA

)

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

$ M

il. (

SA

)

RecessionShipmentsNew Orders (Excluding Transportation and Defense)New Orders

Durable GoodsInventories & Unfilled Orders

$400,000

$450,000

$500,000

$550,000

$600,000

$650,000

$700,000

$750,000

$800,000

$850,000

$900,000

$950,000

$1,000,000

$1,050,000

$1,100,000

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

$ M

i.l (

SA

)

$220,000

$230,000

$240,000

$250,000

$260,000

$270,000

$280,000

$290,000

$300,000

$310,000

$320,000

$330,000

$340,000

$350,000

$360,000

$370,000

$380,000

$ M

il. (

SA

)

Recession

Inventories (RHS)

Unfilled Orders (LHS)