Nick Goold
What are durable goods orders?
Durable Goods Orders is a crucial economic statistic in the United States that provides information about the manufacturing sector's health. It measures the total value of orders for durable goods that last more than three years, such as machinery, electronics, and vehicles.
Why look at Durable goods?
Durable goods are typically more expensive and have a longer lifespan than non-durable goods, such as food and clothing, which means that the production and sale of durable goods can significantly impact the overall size and growth of the economy. When businesses invest in new equipment and machinery, it can lead to increased production and job growth in the manufacturing sector, which can help drive economic growth and prosperity.
Also, the demand for durable goods is often closely tied to consumer and business confidence. For example, when confident in the economy and financial situation, consumers and businesses are more likely to invest in durable goods such as cars, electronics, and appliances. As a result, confidence can lead to increased spending and economic activity, which can help stimulate economic growth.
The production and sale of durable goods can also have a ripple effect throughout the economy, as businesses in other sectors may rely on durable goods manufacturers for supplies or equipment. For example, an industrial machinery manufacturer may rely on durable goods such as steel and electronics to produce its products. Increased demand for durable goods can create multiple effects, leading to increased demand for goods and services in other sectors of the economy.
These aspects make the Durable Goods report an essential indicator for FX traders, stock traders, and anyone interested in the economy's health.
The Durable Goods Orders Report
The U.S. Census Bureau publishes the Durable Goods Orders report. The report is released every month, usually around the fourth week of the month, and includes data on new orders, shipments, and inventories of durable goods.
To calculate the Durable Goods Orders report, the Census Bureau surveys manufacturers in various industries and asks them to report on their new orders for durable goods. The data is then compiled and analyzed to determine the total value of new orders for the month.
Additionally, the report does not provide information on the performance of the service sector, which is a key driver of economic growth in the United States.
Regarding its impact on FX trading, the Durable Goods Orders report can be important for investors looking to trade currencies. Stronger-than-expected Durable Goods Orders data can increase demand for the U.S. dollar, as it suggests that the economy is performing well and may eventually lead to a rise in interest rates. However, if the data comes in weaker than expected, it could lead to a decline in the dollar's value, as it suggests that the economy may be slowing down and may lead to a decrease in interest rates.
Indeed, there have been instances in history where strong or weak Durable Goods reports have precipitated a change in monetary or interest rate policy by countries.
Lessons from history
One example occurred during the global financial crisis of 2008-2009. In the United States, the Durable Goods Orders report showed a sharp decline in new orders for durable goods, signaling a slowdown in the manufacturing sector and the broader economy. In response, the Federal Reserve lowered interest rates to almost nothing and started a series of measures called "quantitative easing" to boost economic growth and stop a full-blown recession.
Another example occurred in Japan in the 1990s. Then, Japan's economy slowed, and prices decreased for a long time. This slowdown was because businesses stopped investing and making durable goods. As a result, the Japanese government and central bank used several monetary and fiscal policies to boost economic growth, such as interest rate cuts and programs to buy assets.
In both examples, the Durable Goods Orders report significantly shaped monetary and interest rate policy. A strong or weak Durable Goods report can signal to central banks and policymakers that the economy is either strong or weak and can influence their decision-making around interest rates and other monetary policies.
However, it is essential to note that central banks and policymakers consider a range of economic indicators when making decisions about monetary and interest rate policy and do not rely solely on the Durable Goods report. The Durable Goods report is just one of many economic indicators that assess the health of the economy and guide policy decisions.
