Durable goods are products that should last more than 3 years. That usually includes things like appliances, furnishings, and heavy equipment. The Commerce Department tracks this data and the number of orders for these things popped up an extra 4.9% in July, which was a nice surprise.
Why do I care whether North Americans are buying a new fridge? This is actually a metric you should watch for insight into potential corporate profits. If durable goods (which tend to cost a lot) are being purchased at an increasing rate, it bodes well for the companies that produce and sell those products.
Apple Inc. (NASDAQ: AAPL), Sears Holdings Corp. (NASDAQ: SHLD), or The Home Depot Inc. (NYSE: HD) are all examples of stocks with products included in the definition of durable goods. Watching companies like this for some buying opportunities may be a good idea.
The last time the durable goods report really surprised to the downside was November of 2008, which ultimately resolved itself several months later as a double bottom. The durable goods report is sort of a "gut check" for the entire manufacturing and retailing industry. If earnings had been good (which they were) but durable goods were slipping, I would be very worried about a big correction back down in the stock market.
John Jagerson is a co-founder of Learning Markets LLC.
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
Reader Comments (Page 1 of 1)
8-26-2009 @ 1:56PM
Iridium said...
The durable goods number went up in July due to back to college orders. Walmart, Target, Sears and others put in orders for mini fridges, furniture, and other items. It really shouldn't be a surprise to anyone that walks into a big box store. Simple logic can deduce that. It boggles my mind how traders base recomendations on information they never read past the headline.
The surprise is the number of these items that were left on the shelf. The closest Target to me has a whole isle of mini fridges elft over that they couldn't sell. Last week the $170 fridge went on sale for $80. The $100 went on sale for $50 in order to clear out inventory.
The consumer is not buying. Pretty hard when people are putting pencils, pens, and paper on layaway.