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Durable Goods and the Forex Market

Forex traders, like all investors in the big investment markets, pay close attention to the economic news of the day. That's because economic data (or economic indicators) often shapes trading, whether it's on the stock market or the currency market. One of the more common economic indicators that are utilized by Forex and other investors is the durable goods report.

Defining durable goods

Before discussing the actual report, the term "durable goods" needs to be explained. Durable goods are those goods that last more than three years. In other words, the consumer expects to make a purchase that won't have to be replaced in the near future. Examples of some durable goods are automobiles, furniture, appliances, tools, and factory equipment.

The durable goods report

The durable goods report is released about the 20th of each month for the prior month's activity. The report measures the number of newly placed orders on durable goods from a sample of over 4,000 manufacturers in roughly 85 industries. Usually, defense and transportation figures are deleted from the report due to their volatility.

This report is vital to investors since it's considered to be one of the major leading indicators for the economy. That means if figures are strong (i.e. high number of orders), then consumers will more likely purchase more durable goods, which will strengthen the domestic currency. On the other hand, if the durable goods number decreases, then consumers will more than likely purchase less goods, which can negatively affect a country's currency rate.

Non-defense capital goods

In addition to other numerous breakdowns of durable goods orders, this report also reflects orders of non-defense capital goods. Non-defense capital goods refer to those orders for non-defense related capital equipment orders. This is an important piece of information since it's basically equivalent to the producers' durable equipment (PDE) category in the all-important GDP economic indicator. Just like other categories, this PDE-like category is a strong indicator for future economic trends. If the non-defense capital goods figure increases, that's a good sign that the economy is growing (positive affect on a country's currency rate). On the other hand, a decrease in orders can signify an impending downturn in the economy.

by Harman Gilly

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