Durable Goods Orders and Capex Signals
What Durable Goods Orders Measure
The Census Bureau's Advance Report on Durable Goods Manufacturers' Shipments, Inventories, and Orders tracks orders for products designed to last three years or more. These long-lived goods reflect business investment decisions.
Categories covered:
- Transportation equipment (aircraft, autos, ships)
- Machinery
- Computers and electronics
- Electrical equipment
- Primary metals
- Fabricated metals
The point is: Durable goods orders capture capital expenditure (capex) intentions before spending occurs. Rising orders today signal business investment in coming quarters.
Why the Headline Is Misleading
The headline durable goods orders figure is dominated by volatile transportation equipment—especially aircraft orders.
Worked example (October 2024):
- Headline durable goods: -0.2%
- Ex-transportation: +0.4%
- Core capital goods orders: +0.7%
A single large Boeing order (or cancellation) can swing the headline by 5-10%. The core measure tells the real story.
Core Capital Goods Orders: The Key Metric
Core capital goods orders exclude defense and aircraft—the two most volatile components.
The definition: Core Capital Goods = Nondefense Capital Goods Excluding Aircraft
Why it matters:
- Tracks business equipment spending intentions
- Feeds directly into GDP business investment estimates
- Less volatile than headline
- Forward-looking indicator of productivity and capacity
| Core Orders Trend | Business Investment Signal |
|---|---|
| Rising 3+ months | Capex expansion underway |
| Flat | Cautious corporate spending |
| Declining 3+ months | Capex retrenchment; recession risk |
Orders vs. Shipments
The report includes both orders (new contracts) and shipments (actual deliveries):
Orders: Forward-looking; what businesses plan to buy Shipments: Backward-looking; what was delivered that month
The GDP connection: Shipments data feeds current-quarter GDP estimates Orders data signals next-quarter GDP direction
Worked example:
- Core capital goods orders: +0.7% (future investment signal)
- Core capital goods shipments: +0.5% (current-quarter GDP contribution)
Defense Orders Volatility
Defense capital goods orders are separately reported and highly volatile:
- Large contract awards create huge spikes
- Concentrated among few contractors
- Policy-driven, not economic cycle-driven
The practical insight: Exclude defense from economic trend analysis. Include it only when analyzing specific defense contractors or government spending.
Aircraft Orders: The Boeing Effect
Commercial aircraft orders at Boeing create massive monthly swings:
| Month | Aircraft Orders | Effect on Headline |
|---|---|---|
| Strong order month | +\0 billion | +8% headline swing |
| Weak/cancellation month | -\0 billion | -4% headline swing |
| Normal month | +/- \ billion | Minimal impact |
Historical example: When Boeing halted 737 MAX production in 2019-2020, durable goods orders showed artificial weakness unrelated to broader business investment.
Reading the Trend
Short-term analysis:
- Focus on month-over-month change in core capital goods orders
- Check for revisions to prior two months
- Compare to consensus expectations
Medium-term analysis:
- Calculate three-month moving average
- Compare year-over-year change
- Check order backlogs for unfilled demand
Order backlog interpretation:
- Rising backlogs: Strong demand, potential capacity constraints
- Falling backlogs: Demand weakening or capacity increasing
Regional and Industry Breakdown
The full durable goods report includes industry detail:
| Industry | What It Signals |
|---|---|
| Primary metals | Early cycle indicator; steel, aluminum demand |
| Machinery | Equipment investment for manufacturing |
| Computers and electronics | Tech capital spending |
| Electrical equipment | Infrastructure and construction spending |
The practical point: When one industry shows strength while others show weakness, investigate sector-specific drivers rather than drawing broad conclusions.
Common Pitfalls
- Reacting to headline numbers: Always check ex-transportation and core
- Ignoring revisions: The advance report is heavily revised in subsequent months
- Confusing orders with sales: Orders are commitments; cancellations happen
- Missing seasonal patterns: Year-end budget flushes and summer slowdowns
Capital Goods Orders and Corporate Earnings
Core capital goods orders correlate with:
- Industrial company revenues (CAT, DE, HON)
- Technology equipment spending
- Corporate capex guidance
The investment insight: When core orders trend down for three or more months, expect downward earnings revisions for industrial companies in subsequent quarters.
Inventories Component
The durable goods report includes manufacturers' inventories:
Rising inventories can signal:
- Anticipated demand increase (positive)
- Unplanned inventory buildup from weak sales (negative)
The interpretation challenge: Context matters. Compare inventory changes to shipments changes to understand whether buildup is intentional or involuntary.
Inventory-to-shipments ratio:
- Rising ratio: Potential overstocking; production cuts ahead
- Falling ratio: Lean inventory; restocking possible
Checklist for Durable Goods Day
Before the release (late month):
- Know consensus for headline and core capital goods
- Note recent Boeing order announcements (often pre-released)
- Check ISM manufacturing new orders for directional hint
After the release:
- Compare headline to ex-transportation to core
- Check revisions to prior two months
- Note defense orders separately
- Calculate three-month moving average for core orders
Next Step
Track core capital goods orders alongside the S&P 500 industrials sector for six months. Note the correlation with a lag—deteriorating orders often precede earnings estimate cuts for industrial companies by 1-2 quarters. This relationship helps with sector allocation timing.