Durable Goods Orders Fall More Than Expected in October

Economists frequently study this indicator excluding transportation or defense or both. Just how big are these two subcomponents? Here is a stacked area chart to illustrate the relative sizes over time based on the nominal data. We've also included a dotted line to show the relative size of the core capex subset, which we'll illustrate in more detail below.

The next chart shows the year-over-year percent change in durable goods. We've highlighted the value at recession starts and the latest value for this metric.

The next chart shows the year-over-year percent change in core durable goods (i.e., excluding transportation).

The next chart shows the growth in core durable goods (purple line) overlaid on the headline number (green dots) since the turn of the century. This overlay helps us see the substantial volatility of the transportation component.

Here is a similar overlay, this time excluding defense as well as transportation (an even more "core" number).

Durable Goods - Core Capex

Core capital goods new orders are manufacturers' new orders for non-defense capital goods excluding aircraft and is an important gauge of business spending, often referred to as "core capex." Core capex is company spending that is used to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, and equipment. This month, core capex was down 0.1% MoM and up 0.6% YoY.

The next two charts take a step back in the durable goods process to show illustrate core capex. Here is the year-over-year core capex.

The next chart is an overlay of core capital goods (excluding defense) on the larger series showing the percent change of the two since the turn of the century.

The "Real" Durable Goods Data

In theory, the durable goods orders series should be one of the more important indicators of the economy's health. However, its volatility and susceptibility to major revisions suggest caution in taking the data for any particular month too seriously. Additionally, this series is not adjusted for either population growth or inflation. Let's review the durable goods data with those two adjustments.

In the charts below the lighter line shows the goods orders divided by the Census Bureau's monthly population data, giving us durable goods orders per capita. The darker line goes a step further and adjusts for inflation based on the PPI for all commodities, chained in today's dollar value. This gives us the "real" durable goods orders per capita and thus a more accurate historical context in which to evaluate the conventional reports on the nominal monthly data.

We've included a callout in the upper right corner to document the decline of the latest month from the all-time peak for the series.

The next chart is similar to the first one except that it excludes the volatile transportation component, the series usually referred to as "core" durable goods.

Now we'll exclude both transportation and defense for a better look at a more concentrated "core" durable goods orders.

Here is the chart that gives the most accurate view of what consumer durable goods orders is telling us about the long-term economic trend. The six-month moving average of the real (inflation-adjusted) core series (ex-transportation and defense) per capita helps us filter out the noise of volatility to see the big picture.

Durable Goods per Capita - Core Capex

Finally, let's take a big step back in the sales chain and look at the popular series often referred to as "core capex" — nondefense capital goods new orders excluding aircraft (capital goods are durable goods used in the production of goods or services), shown here on a per-capita basis, nominal and real.

Here is the real per-capita core capex smoothed with its six-month moving average for a better sense of the trend. This metric has went nowhere for six years until the COVID recession, and then started to decline but has seen some growth in the recent months.

The Long Term Trend in Durable Goods

As these charts illustrate, when we study durable goods orders in the larger context of population growth and also adjust for inflation, the data becomes a coincident macro-indicator of a major shift in demand within the U.S. economy. It correlates with a decline in real household incomes, as illustrated in our analysis of the most recent Census Bureau household income data:

• Monthly Median Incomes Since 2000
• By Quintile and Top Five Percent
• Median Incomes by Age Bracket

The secular trend in durable goods orders also helps us understand the long-term trend in GDP illustrated elsewhere. See especially the most recent update on GDP.

As we can see from the various metrics above, revisions notwithstanding, the real per-capita demand for durable goods had increased since the trough at the end of the great recession. But new orders remain far below their respective peaks near the turn of the century. A key driver, or lack thereof, for healthy growth in durable goods orders is growth in household incomes. For a perspective on this point, see our latest update on Median Household Incomes.

Read more updates by Jen Nash