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The us manufacturing sector continued its rebound in july. Heres the way to to see that a chart showing new orders for goods that typically last three years longer after declining sharply. Following coronavirus lock.
Downs new orders rose to about 2307. Billion. In july.
But still remain below. Pre pandemic levels. Counting new orders for long lasting.
Goods can reveal whether manufacturing activity is expanding or contracting. That can point toward changes in the economys recovery. That gives you a sense of where things are headed so it counts orders that in a lot of cases that retailers make to manufacturers.
So if youre a retailer. A major retailer and youre ordering a bunch of products say a bunch of dishwashers thats because youre pretty confident youre going to be able to sell them pretty soon narrator the first thing to know about the durable goods indicator is what it measures the number begins with a survey of about 3100 manufacturing companies across 92 categories in the united states.
The businesses report on how many new orders they filled to produce longer lasting durable goods there are two types of goods non durables are consumed quickly like paper food or gasoline and then there are durables that count includes construction materials like lumber. It also includes firearms office chairs tape measures and computer hard drives it includes dslr cameras and vr headsets medical equipment like electrocardiography machines or gurneys are durable goods too as our pieces of fine jewelry and books. It also includes items that are really expensive and arent purchased that often products like heavy machinery for example these conveyor belts are durable goods economists track the increase or decrease in the new orders on a month to month basis.
If more new orders come in this month than the last that could point toward an economic expansion thats because one new durable goods order can signal future activity to see that in action heres an example a farm might need to purchase a tractor. So it places an order the tractor manufacturing company then places orders with a number of other companies who produce parts like engines windshields and lights each of those suppliers sends orders to manufacturers for raw materials and other durable goods. The indicator can also capture the ripple effects from a bigger national trend like housing sales.
Suppose say home sales are doing really well like it turns out they are right now. Its conceivable. Its possible that a bunch of people are gonna start buying long lasting appliances for their homes.
And that in turn will cause the retailers of these long lasting appliances to to order more from manufacturers narrator the durable good survey captures the manufacturing activity thats connected to business activity. In this case. The purchase of a home many manufacturers track these new orders and send the data to the census bureau.
Most of the manufacturers in the survey have 500 million or more in annual shipments. But it also includes some smaller firms to make the sample.
More representative economists investors and analysts watch for changes in the numbers which are released monthly our main use really is it feeds into the gdp reports which is this very obviously very closely watched indicator narrator durable goods can provide early insight into economic patterns but the indicator is not without flaws of the many items that are counted in the survey. Some are outweighed and can obscure changes elsewhere in manufacturing. One thing to keep in mind about the durable goods report is that its very volatile and the source of the volatility are things like like aircraft narrator to see a better proxy for business investments you can look at the non defense capital goods excluding aircraft its a subsection of the durable goods survey that gives you a better sense of kind of of the trend.
Which is really what were looking for here narrator excluding aircraft makes a significant difference in the data for example in some cases. A new boeing jet liner can cost between 50 million to over 200 million and its supply chain stretches to over 12000. Companies.
But production of new boeing planes has stalled following two fatal seven 37. Max crashes and a pandemic driven collapse in air. Travel 500.
Jet orders were canceled this year alone and new orders have slowed to a trickle boeings troubles have overshadowed other manufacturing activity which skewed the durable goods survey results david it made the durable goods number look very strange because you had all these aircraft orders they werent coming in so you know a few major categories like that can really skew. The results public spending on defense can do the same things that the military buys are also included in this report so if the pentagon puts in an order for a bunch of fighter jets or a bunch of tacks or something like that you know that shows up in the report. Its hugely expensive and it will really sort of bump up the numbers for that month.
But it doesnt really tell you a whole lot about the overall state of the economy. Its just. The pentagon has made a bunch of orders for tacks narrator the durable goods survey captures ripples of economic activity across manufacturing but economists look beyond the headline number for a more meaningful view of where things are headed bright upbeat music.
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