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Economic Reports Primer, Pt 10: Forward-Looking Durable Goods

September 13, 2016
Durable goods economic report for investors and option traders.

The durable goods report released each month by the Census Bureau is often dismissed as a second-tier report that’s not nearly as market-moving or attention-grabbing as the monthly employment report or the personal consumption expenditures (PCE) report on inflation. The durable goods report measures the level of orders for products with a lifespan of three years or more. This includes washing machines, refrigerators, cars, and even airplanes.

But don't stop reading yet.

A proxy for business investment: The sometimes-ignored durable goods report harbors some unique and enlightening economic data buried within its line items. Digging deep into the numbers, there’s a category that essentially measures business spending, which can offer significant clues regarding economic strength. The key component economists often look to is the orders for non-defense capital goods excluding aircraft. Yep, it’s a mouthful.

Why you should care: If businesses are spending on equipment, this is interpreted as a sign of overall business confidence and expectations for future growth.

Report name: Manufacturers’ Shipments, Inventories, and Orders 
Released by: United States Census Bureau
Release date: Near the end of the month for the previous month's data
Release time: 8:30 a.m. ET

Best trait: Economists like this report because it’s forward-looking, says Patrick O'Hare, chief market analyst at "It measures new orders and what’s going on in the trend for new orders," he says. O'Hare pointed to the unfilled orders category as a key data point that economists track within this report. "It’s used to develop a sense of what type of backlogs there are in the manufacturing sector. A rising level of unfilled orders suggests manufacturers are pretty busy and can't keep up with current demand," he explains. That can lead to new business investment and new employment.

One weakness: One big month of airplane sales at Boeing, for instance, can completely throw this report off balance. "Aircraft and defense orders go into this report, and those items come with a big price tag. It can make one month look extremely strong,” O'Hare says.

Good tip: O'Hare suggests focusing on the durable orders excluding transportation figure. "It strips out the aircraft contribution and is a cleaner read of the underlying manufacturing sector."

Tradability rating:
 (a) Tends to be ignored. (b) Depends on overall trading climate. (c) Don't miss this one.

Because of the forward-looking qualities of this report, O'Hare ranks this a "7" on a scale of 1 to 10.

Current read: On a year-over-year basis, new orders are down slightly. "We aren’t seeing a lot of strength there. The manufacturing sector has seen a number of headwinds including a strong dollar, a pullback in commodity prices, and a high level of uncertainty for businesses," O'Hare says.

Mark your calendar: The advance report release dates in 2016 include September 28, October 27, November 23, and December 22.

See This Data in Action

Now you can compare the historical performance of this exact report (and nearly 400,000 other economic data points) inside thinkorswim.

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