- [Narrator] The US manufacturing sector,
continued it's rebound in July.
Here's the way to see that,
a chart showing new orders
for goods that typically last three years
or longer.
After declining sharply,
following coronavirus lock downs,
new orders rose to about
$230.7 billion in July.
But still remain below
pre pandemic levels.
Counting new orders
for long lasting goods can reveal
whether manufacturing
activity is expanding
or contracting.
That can point toward changes
in the economy's recovery.
- That gives you a sense
of where things are headed.
So it counts orders
that in a lot of cases,
that retailers make to manufacturers.
So if you're a retailer,
a major retailer,
and you're ordering a bunch of products,
say a bunch of dishwashers,
that's because you're pretty
confident you're going
to be able to sell them pretty soon.
- [Narrator] The first thing
to know about the durable
goods indicator is
what it measures.
The number begins with a survey
of about 3,100 manufacturing companies
across 92 categories in the United States.
The businesses report on
how many new orders they filled
to produce longer lasting durable goods.
There are two types of goods.
Non durables are consumed
quickly like paper,
food or gasoline.
And then there are durables,
that count includes construction
materials like lumber.
It also includes firearms,
office chairs,
tape measures and computer hard drives.
It includes DSLR cameras and VR headsets,
medical equipment,
like electrocardiography machines,
or gurneys are durable goods too,
as our pieces of fine jewelry and books.
It also includes items
that are really expensive and
aren't purchased that often.
Products like heavy machinery.
For example,
these conveyor belts are durable goods.
Economists track the increase or decrease
in the new orders on a
month to month basis.
If more new orders come
in this month than the last,
that could point toward
an economic expansion.
That's because one new durable goods order
can signal future activity.
To see that in action,
here's an example,
a farm might need to purchase a tractor.
So, it places an order.
The tractor manufacturing company,
then places orders with a
number of other companies
who produce parts like engines,
windshields and lights.
Each of those suppliers
sends orders to manufacturers
for raw materials and other durable goods.
The indicator can also capture
the ripple effects from
a bigger national trend
like housing sales.
- Suppose say home sales
are doing really well,
like it turns out they are right now.
It's conceivable,
it's possible that a bunch
of people are gonna start
buying long lasting appliances
for their homes.
And that in turn will cause
the retailers of these
long lasting appliances to,
to order more from manufacturers.
- [Narrator] The durable
good survey captures
the manufacturing activity
that's connected to business activity.
In this case,
the purchase of a home.
Many manufacturers track these new orders
and send the data to the Census Bureau.
Most of the manufacturers
in the survey have $500 million
or more in annual shipments.
But it also includes some smaller firms
to make the sample more representative.
Economists, investors and analysts watch
for changes in the numbers,
which are released monthly.
- Our main use really,
is it feeds into the GDP reports which is
this very obviously very
closely watched indicator.
- [Narrator] Durable goods
can provide early insight
into economic patterns,
but the indicator is not without flaws.
Of the many items that
are counted in the survey,
some are outweighed and can
obscure changes elsewhere
in manufacturing.
- One thing to keep
in mind about the durable goods report is
that it's very volatile.
And the source of the
volatility are things like,
like aircraft.
- [Narrator] To see a better
proxy for business investments,
you can look at the
non-defense capital goods,
excluding aircraft.
It's a subsection of the
durable goods survey.
- That gives you a better sense
of kind of,
of the trend,
which is really what
we're looking for here.
- [Narrator] Excluding aircraft makes
a significant difference in the data.
For example,
in some cases,
a new Boeing jet liner can cost
between 50 million to over $200 million.
And its supply chain stretches
to over 12,000 companies.
But production
of new Boeing planes has stalled following
two fatal seven 37 MAX crashes
and a pandemic driven
collapse in air travel.
500 jet orders were canceled
this year alone and new orders have slowed
to a trickle.
Boeing's troubles have overshadowed
other manufacturing activity which skewed
the durable goods survey results.
- [David] It made
the durable goods number look very strange
because you had all
these aircraft orders
they weren't coming in.
So, you know,
a few major categories
like that can really skew
the results.
- Public spending
on defense can do the same.
- Things that the military
buys are also included
in this report.
So if the Pentagon puts in an order for
a bunch of fighter jets
or a bunch of tacks or
something like that,
you know that shows up in the report.
It's hugely expensive
and it will really sort
of bump up the numbers
for that month.
But it doesn't really tell you
a whole lot about the overall state
of the economy,
it's just the Pentagon has made
a bunch of orders for tacks.
- [Narrator] The durable
goods survey captures ripples
of economic activity across manufacturing.
But economists look beyond
the headline number for
a more meaningful view
of where things are headed.
(bright upbeat music)
