Microeconomic Indicator in FOREX:
Durable Goods Orders
What are Durable Goods Orders?
Firstly, a durable good is one where the product will last for a very long period of time (usually three or more years), and a consumer does not purchase the item frequently. Under economic terms, it forms a leading indicator for the health of an economy as it measures the overall growth of the manufacturing sector.
How important is the Durable Goods Order Indicator?
When it comes to evaluating a country’s growth prospects, this is a major indicator as it helps in understanding how well the engineering sector is going to perform in the near future. This indicator shows the potential of the consumers and their progression in their spending power. A rise in spending power is directly related to GDP and constitutes the growing financial strength of the population of the country.
If there is an expansion in purchases that means there is more demand for the goods. This fact directly raises confidence in the manufacturers, and they increase their production. This data also attracts foreign purchasers and own government funding into the industries.
However, the data is believed to be extremely volatile due to defence and transportation sector, which account for large dollar items that are ordered on an irregular basis, causing unexpected surges in the monthly figures. Economists typically use this figure by excluding defence and transportation orders and analysing the three- to a six-month moving average.
Taking a real example, the Durable Goods Orders figure was able to predict the recession in the year 2006. It was only much later that again durable goods hinted at the economy getting better in 2009 after the great depression. Durable goods order from then on has remained positive.
Reliable sources of information on ‘Durable Goods orders’ for Major currencies:
If one needs to get the right information in this regard, there are ample of country bank’s websites which publish the data and keep updating them. But here we need to keep in mind that a single month’s data should never be considered in isolation as it can mislead, instead what the real economic analysts do is that they try to average the numbers obtained in over a few months and the aggregate result is considered. This will help us with a long term vision for the nation. Comparing the results from different sources can also be a good measure to reduce risk due to wrong data.
That’s why the Census Bureau’s monthly ‘DURABLE GOODS ORDER’ report is widely considered as one of the most important economic indicators.
Here are a few latest data on consumer goods collected recently:
NZD - https://figure.nz/chart/KFYRpb4enpws07qx-cDbOuhZw8jyncuBe
CAD - https://tradingeconomics.com/canada/new-orders
CHF - https://tradingeconomics.com/switzerland/factory-orders
JPY - https://tradingeconomics.com/japan/machinery-orders
Why Do Traders care about Durable Goods Orders data and its impact on the currency?
Buyers in all countries are increasingly looking for higher discounted appliances, toys and electronics. This search has led them to look at other countries to purchase such items. Items not consumed that often. Hence, this amounts for a significant market share among the producers. During a bull market, there are a lot of expectations from the country, and this invites a lot of foreign investment and growing interest among the international equity firms.
All of this happens under the confidence that lenders have in the economy from the strong consumer goods data. During a recession, there is less expenditure from consumers for the durable goods which will directly impact the economy of the country. There is also a possibility that the whole manufacturing sector might come under a standstill. If this happens, then there is very little faith in the financial state of the country.
As we just saw, this particularly crucial data is for analysing the financial and overall currency strength. Traders are always wary of this information and give a lot of weight before coming to any investment proposal.
Frequency of the release
The Durable Goods Orders for most of the major economies is released on a monthly basis. This statement includes electrical and shipment equipment, core machinery, petroleum and coal products an increase or decreases month-over-month. At the end of a financial year, the report suggests the change from the previous year and also forecasts the future production based on some pre-formulated recipes. Making use all this data taken together it helps the traders to decide as to which currency they can park their cash. Every month’s release tends to affect the bank’s monetary policy which reflects in the change in interests to control the cash flow.
The Bottom Line
After clearly understanding what durable goods order means and what its impact is one must cautiously decide on investing in a particular currency. As consumers are going more and more into online shopping, the technology sector should also be looked upon carefully. Durable goods order is undoubtedly one of the major indicators for any investment firm without which they do not take any action as it provides an overview of the cluster of industries taken together. Therefore traders always keep a keen watch on these numbers as it is the best way to be ahead.