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Recent Durable Goods Report Brought to You by the Number 230 Billion and by the Letter V

Posted by Jerry Bowyer on 9/1/20 9:26 AM

As of this writing (8/26/2020), we have what’s called the Monthly Advance report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for the month of July. This is an important indicator and the new number is indicating something important -- a rapid recovery in the manufacturing sector.

Don't take my word for the importance of the metric. Here's Investopedia:

“KEY TAKEAWAYS

  • Durable goods orders is a broad-based monthly survey conducted by the U.S. Census Bureau that measures current industrial activity and is used as an economic indicator by investors.
  • Durable goods orders provide more insight into the supply chain than most indicators and can be especially useful in helping investors understand the earnings in industries, such as machinery, technology manufacturing, and transportation.
  • A high durable goods number indicates an economy on the upswing while a low number indicates a downward trajectory."

Note that it is 'broad-based', meaning it tells us something about the economy in general. Also note that it is a glimpse into the supply chain, meaning that it includes portions earlier in the production and consumption process, which are an important part of the economy but are not fully covered in various consumption-driven measures of growth, such as GDP and various retail sales. Also, it is by nature focused on manufacturing of heavy goods, and as we have shown before, that’s a substantial slice of economic output -- larger than sectors which tend to get more attention such as retail or entertainment. We have also argued that sectors like this are less vulnerable to the adverse effects of pandemics and more amenable to reopening then some of the smaller-impact slices.

These recent results are consistent with that idea - durable goods manufacturing is coming back strong.

Durable Goods New Orders

(Source: U.S. Bureau of Economic Analysis)

That's roughly $231 Billion in goods in one month (July), which is an 11% increase. The prior month's number was revised upwards so that it represented almost an 8% increase. That's more than half a trillion dollars in three months.

Durablel Goods New Orders Bar

 (Source: U.S. Bureau of Economic Analysis)

Look at the cycle starting with the crisis in February and to the latest available data. It should remind you of a certain letter:

Durable Goods New Orders FRED
(Source: Federal Reserve Bank of St. Louis)
 

Not every sector is likely to be able to make a V-shaped recovery. Nightclubs and nail salons might look a bit more like a mix of an L and a checkmark, so V is not the only letter one can use to spell out the shape of our recovery. But durable goods is a big one and it has almost made it back to normal levels of output.

Topics: Economics

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