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Answer:
Dear
P. Rosen,
Good
question... Before we delve too far into the topic,
let's take a look at what the term durable goods means.
It refers to products that are not quickly disposed
of or consumed. Most economists and number crunchers
agree on the 3 year figure - durable goods are those
that have a useful life of 3 years or longer. Note:
You may also see them referred to as hard goods
or big ticket items. The phrase big ticket can be
inaccurate when used to identify an expensive item
that is used up in less than three years, such as
a case of champagne or an expensively priced fad,
like a designer fur coat or handbag.
The
government reports on new orders for durable goods
every month. The official figure is based on the value
of orders received by domestic manufacturers for such
items as airplanes, cars, trucks, motorcycles, home
furnishings and fixtures, sporting goods, computers
and electronic equipment, dishwashers, washers, dryers,
refrigerators and other appliances, photographic equipment
and the like.
The
report comes out around the 24th to the 26th of the
month.
Last
month (April), durable goods orders fell about 4.8%.
The report indicates that the drop was due to a decline
in orders for computers, electronic products and aircraft.
The underlying cause behind the decline may in part
be due to the increase in the price of oil.
What
it means for investors
This
is one of the most volatile of the key economic numbers.
And, one month's report does not create a trend --
in March, for example, durable goods orders were up
6.6% and in February, up 3.6%.
If,
however orders are down for several continual months,
it's a good time to look at stocks of publicly traded
manufacturing companies and consider selling those
not performing well (especially if you come away with
a profit) and/or adding stocks of well-managed companies
that are selling below their recent highs.
In
general, think of the durable goods order as showing
how busy factories will or will not be in the next
month or two. Any obvious trend in orders gives investors
a clue as to which products will be in demand.
But
take it one step further, and look into the equipment
needed by factories to meet any increased demand,
such as industrial machinery, heavy and light equipment,
electrical power and even computers.
Bottom
line: Orders for durable goods indicate what we
might expect from the manufacturing sector over a
short time frame.
It
is a general assumption that when the economy is strong
and consumers are feeling confident, they tend to
purchase more cars and computers. But like many generalizations,
this one is not always true.
I
recommend that you follow the reports written by independent
analysts in the Value Line Investment Survey.
This research service, updated and printed weekly,
covers 1,700+ stocks in 90 industries. It is available
at many libraries. Or, check out the trial subscription
($75 for 13 weeks) at: www.valueline.com.
If you find it too pricey, why not share a subscription
with a friend or, if you belong to an investment club,
use the members' pooled money to subscribe.
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