New orders for durable goods are up 3.2 percent in March from February after a small downward revision to down 1.2 percent in February. The increase is well above the consensus of up 0.9 percent in an Econoday survey. The gain is mainly due to a larger than expected 9.1 percent rise for transportation equipment that was powered by aircraft orders. Excluding transportation, new orders are up 0.3 percent in March.

In transportation, orders for nondefense aircraft and parts jump 78.4 percent in March from the prior month. Defense aircraft and parts orders for March are up 10.4 percent. Outside of transportation, most categories see small declines or little gain. However, orders for computers and related products are up 1.8 percent in March, and orders for electrical equipment, appliances, and components are up 0.8 percent.

Unfilled orders are up 0.4 percent in March from the prior month, helped by increases of 0.9 percent in nondefense aircraft and 1.1 percent in defense aircraft. Excluding transportation, unfilled orders are up 0.1 percent.

It is typical for new orders to alternate stronger and softer readings in this report. Swings in transportation orders can have an outsized impact on the headline. The underlying trend appears to be for modest new orders in most categories with limited backlogs to support activity should economic conditions turn lower.

Forecasters see durable goods orders rising 0.9 percent in March to nearly reverse February's 1.0 percent fall. Ex-transportation orders are seen down 0.2 percent with core capital goods orders rising 0.2 percent.

Durable goods orders are new orders placed with domestic manufacturers for factory hard goods. The report also contains information on shipments, unfilled orders and inventories. The advance release provides early estimates and is revised about a week later by the factory orders report.

Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. Rising equity prices thrive on growing corporate profits - which in turn stem from healthy economic growth. Healthy economic growth is not necessarily a negative for the bond market, but bond investors are highly sensitive to inflationary pressures. When the economy is growing too quickly and cannot meet demand, it can pave the road for inflation. By tracking economic data such durable goods orders, investors will know what the economic backdrop is for these markets and their portfolios.

Orders for durable goods show how busy factories will be in the months to come, as manufacturers work to fill those orders. The data not only provide insight to demand for items such as refrigerators and cars, but also business investment such as industrial machinery, electrical machinery and computers. If companies commit to spending more on equipment and other capital, they are obviously experiencing sustainable growth in their business. Increased expenditures on investment goods set the stage for greater productive capacity in the country and reduce the prospects for inflation.

Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy, and therefore a major influence on their investments.

Importance
Durable goods orders are a leading indicator of industrial production and capital spending.

Interpretation
The bond market will rally (fall) when durable goods orders are weak (strong). A moderately healthy report for new orders bodes well for corporate profits and the stock market, however. Durable goods orders are one of the most volatile economic indicators reported in the month and this series can be revised by significant amounts from one month to the next. More than any other indicator, it is imperative to follow either three-month moving averages of the monthly levels or year-over-year percent changes. These adjustments smooth out the monthly variability and provide a clearer picture of the trend in the manufacturing sector.

Whenever economic indicators are particularly volatile, it becomes customary to exclude the more variable components from the total. For instance, market players exclude defense orders and transportation orders from durable goods because these fluctuate more than the overall total. Incidentally, aircraft orders are the guilty culprit, which are included in both of these categories. Airplanes are ordered in quantity, not one at a time. Analysts exclude the categories containing aircraft orders because they obscure the underlying trend, not because the aircraft industry is unimportant.

Economists closely watch nondefense capital goods orders as a leading indicator of capital spending. Typically, traders follow the special series for nondefense capital goods excluding aircraft because it shows the underlying trend for equipment investment after discounting sharp swings from aircraft orders.

Durable goods orders are measured in nominal dollars. Economic performance depends on real, rather than nominal growth rates. One can compare the trend growth rate in durable goods orders with that of the PPI for finished goods to assess the growth rate in real orders.