How to interpret… US core durable goods orders

Durable goods – generally those goods with a life span of more than 3-5 years and often used in the manufacturing of other goods – make up a key part of business investment spending. Since the other part, nondurables, is less cyclical and so less predictive of future manufacturing activity, durable goods orders are one of the primary leading indicators of future activity. Changes in durable goods orders have a knock-on effect to other key indicators such as industrial production, employment, and spending. A rise in durable goods orders (especially relative to expectations) is typically negative for bonds. However, to work out what the impact might be on risk assets such as stocks, it is important to simultaneously consider the level of capacity utilisation in the economy. While usually more spending on durable goods is good for risk assets, if the economy is already running at close to full capacity then a sharp rise in durable good orders might be cause for concern that interest rates are set to rise, triggering a recession.