06: DURABLE GOODS - ECONOMIC REPORTS FOR ALL MARKETS
This is the 6th video in a series on economic reports created for all markets, or for those who simply have an interest in economics. In this lesson we cover the Durable Goods report.
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Link to the Durable Goods Report:
Text from vid:
The Advanced Report on Durable Goods.
Durable goods are manufactured goods that have a normal life expectancy of more than 3 years, including things like cars, appliances, business equipment and machinery, computers, and furniture.
Basically, it is everything that is not a consumable.
The advanced report on Durable Goods is used to gauge the condition of the manufacturing sector, as well as the overall health of the economy.
It is reported once a month by the Dept of Commerce about 3 to 4 weeks after the month being reported.
The report is split into 2 sections, with each section having 2 categories.
The first section contains manufacturers shipments and new orders.
The 2nd section contains manufacturers unfilled orders and inventories.
New orders are just that- new orders for product.
Shipments refers to the completed product shipping to the customer.
Unfilled orders are orders that are in the process of being built.
Inventories are built and finished product that has not yet sold or shipped.
Each section is then split into many sub-sections.
There is the total orders section.
The total new orders is the main statistic reported in the media.
And then there is the total orders minus transportation, and then total orders again only this time minus defense. Because both the defense and transportation sectors can have large variances, in other words very large orders, sometimes the data from these sectors can throw off the overall total. Therefore the data is displayed with each of these sectors excluded to get a better overall picture of the economy.
Primary metals: The primary metals section is the metals industry including companies like US Steel and Alcoa. Since primary metals are part of the raw materials used to produce goods, increases in demand for primary metals could be a beginning sign that inflation may soon increase.
Fabricated metals: The fabricated metal products sector includes things made from metal other than completed vehicles and complex machinery; things like hand tools, cans, structural metal products, as well as stamped and forged items.
Some different sections for computers and electronics
Some different sections for transportation
Some different sections for capital goods including ...
And an everything else section.
There are also sections for summaries in the beginning of the report.
Like the New Orders section of the ISM Manufacturing report, the new orders and shipments section of the durable goods report can be used as a leading indicator for all markets.
For instance, it can be used to gauge if the economy is expanding or contracting, and it is an excellent indicator for predicting short term changes in GDP.
The new orders and shipments section can also show which sectors are expanding or contracting.
The new orders section can be used for, among other things, gauging future employment levels.
If the level of new orders is rising, companies will need to hire more employees to build the goods.
If the level is dropping, employers may find they need to reduce the number of employees they have.
In general, an increase of new orders and shipments is seen as a good sign for the economy, because it shows that demand is increasing.
However, it depends on where the economy lies on the business cycle.
If GDP is declining or near the low end of the cycle, an increase in demand shows that the economy is improving,
On the other hand, if GDP is already near the high end of the cycle, an increase in demand could be a signal that inflation is increasing and efforts may be taken to slow down the economy such as raising interest rates.
In other words, if the economy is already booming, a report that says it is growing bigger could be considered bad news.
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