Durable Goods Orders is an index used to measure changes in the volume of demand for durable goods. Durable goods here are goods that can last up to 3 years or more such as vehicles, building materials, furniture, household appliances, spare parts, accessories and so on. The report on Durable Goods Orders becomes the main and important consideration of manufacturing activity in the United States and is also an important indicator for investors.
Durable Goods Orders data is issued by the United States Census Bureau and is usually released every 1 month in the last week at 13:30 GMT. The news release of Durable Goods Orders is considered as medium impact to high impact news that is often awaited by forex market participants. The impact is quite large and greatly affects USD price movements, but sometimes the impact is also often influenced by other factors such as sentiment because when data is released, prices often move quite significantly.
The release of Durable Goods Orders data itself is often used by forex market players, the indication is that if the data release is higher than the forecast, the USD currency will strengthen or the data will provide positive sentiment towards the dollar, on the other hand, if the data release is lower than the forecast, it will give negative sentiment and the value of the USD currency will tend to weaken/decrease.
Effect of Durable Goods Orders on the economy
The durable Goods Orders report was able to detect a shift in the United States economy during the previous 6 months, where the declining orders during that period indicated a decline in the US economy, while if the data increased, it indicated that the US economy was doing well. Durable Goods Order is quite important for economic indicators because this indicator provides a clear picture of the supply chain in the United States economy.
Consumers will order more durable goods if it is indicated that US economic conditions are improving, for this reason the increase in Durable Goods Orders can be used to determine the trend of the US economy. In addition, usually based on the decisions of market participants who depend on economic growth signals, the Durable Goods Orders indicator will help determine the sentiment of the movement of the US dollar currency.
Durable Goods Orders rise >> consumers believe the economy will improve >> US economic trend is up >> Market sentiment is improving (bullish) >> demand for the dollar is increasing >> the dollar rate is strengthening
Durable goods orders is a monthly survey conducted by the US Census Bureau (BPS of the United States of America) to measure changes in the total value of product orders including durable products. The purpose of durable products or durable goods such as industrial machines, computers, raw materials for making iron, military vehicle products, to airplanes for air transportation, which is interpreted in simple language, is a product that can be used continuously for several years.
This data is often used as an indicator that helps investors in making investment decisions. If the value of durable goods orders issued by the US Census Bureau is above zero, it means that economic activity is growing, but if the value of durable goods orders is below zero, it indicates that economic activity is sluggish and makes investors refrain from making larger investments.
In conducting this survey, the US Census Bureau will announce the number of stocks of durable goods owned by producers, the number of orders for durable goods received by producers and data on shipments of durable goods made by producers. One of the most important is the number of orders for durable goods because when there is an increase in orders for durable goods, it means that the economy is developing, so it is likely that economic growth will be greater than before.
Why is the economy classified as developing when the number of durable goods orders increases?
Because a company that orders durable goods has done its own calculations regarding the prospects that will occur in the future until it finally decides to buy industrial machines, computer equipment and raw materials for large manufacturers for its business activities. Things like this usually happen when a company has the idea of expanding its business to make new factories in other areas, so that it requires a lot of durable goods such as industrial machines, various computer equipment and others. Or the company wants to maximize its current production capacity so that it decides to add industrial machines which often have quite expensive prices. Without a promising prospect in the future, the company will not be careless in making durable goods orders so as not to make the company’s budget allocation in vain.
DGO has a positive correlation with the rotation of a country’s economy. The goods included in the DGO, apart from being household consumption goods, are also mostly consumed by large companies. If the wheels of the economy and the velocity of money in a company are weak, the company tends not to buy durable assets. The purchase of durable assets in a company is not only done periodically, it is also usually done due to business expansion. For example, when a company will set up a branch office in another area, the primary goods to be purchased are durable goods such as industrial machines, computer equipment, desks, and other office equipment. Therefore, it can be concluded that when purchases of durable goods decline, the wheels of the economy are weakening. Meanwhile, when purchases of durable goods increase, the economy is in good condition.
DGO data is generally used as an indicator to help investors see conditions and analyze which investment assets are good for investment instruments. If the released durable goods orders indicator is above zero (0) then it can be interpreted that economic activity is developing. On the other hand, if the durable goods orders indicator is below zero (0), it indicates that the economy is not doing well. When the DGO is above zero, investors will be more enthusiastic to invest, while when the DGO value is below zero, investors tend to be reluctant to invest their funds.
Benefits of durable good orders for investors
Durable good order data is very important for investors. They use this data for a variety of purposes, including:
– Analyzing the stock market: the increase in durable good data is the same as the increase in manufacturing industry income. Where this will have an impact on the price of manufacturing stocks. On the other hand, this also indicates a positive American economy. As a result, the US stock index will tend to be bullish.
– Analyzing the dollar currency: when the US economy strengthens, the USD tends to be bullish. Investors take advantage of this data to take positions in financial markets. Will they enter short or long.
