Economic Data: The Durable Goods Report and Private Investment

By at 27 September, 2017, 1:57 pm

by Raymond J. Keating-

On September 27, the U.S. Census Bureau released its first look at durable goods for August 2017.

Census reported: “New orders for manufactured durable goods in August increased $3.9 billion or 1.7 percent to $232.8 billion…This increase, up two of the last three months, followed a 6.8 percent July decrease. Excluding transportation, new orders increased 0.2 percent. Excluding defense, new orders increased 2.2 percent.” Significant volatility is the reason for looking at new orders absent transportation and defense.

Why is the durable goods data important?

Durable goods orders serve as a leading indicator on the economy, as households and businesses tend to make investments in durable goods when expectations for the economy are positive. For good measure, these orders provide a measure of where things are headed on manufacturing.

For good measure, within the report, nondefense capital goods excluding aircraft warrants attention as it serves as a measure of private investment in equipment and software, which makes up a significant part of GDP private investment. So, the durable goods report offers information on investment in the current quarter via shipments, and on output in the future through orders.

As for nondefense capital goods excluding aircraft shipments, they rose by 0.7 percent in August, following on a 1.1 percent gain in July. Meanwhile, orders in August rose by 0.9 percent, following on a 1.1 percent increase, once again, in July.

The chart below shows the trend in monthly nondefense capital goods excluding aircraft orders. The downturns around and during the 2001 and the 2007-09 recessions are clear, as is what SBE Council has called the manufacturing recession from late 2014 to the late summer of 2016. Indeed, so far in the twenty-first century, it’s been an up-and-down pattern, rather than a growth story – and that in turn is reflected by our overall lackluster economic growth numbers. Looking at the recent order numbers, growth resumed in July of last year, and while it has been uneven and hardly robust, the trend has been in the right direction.

Hopefully, this most recent trend in this key investment measure will pick up steam. That, no doubt, would be helped by business tax reform – in particular, lower tax rates and improved incentives for capital investment via expensing – becoming reality.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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