Durable goods orders rebounded 1.4 percent in February, roughly in line with expectations, following a downwardly revised 6.9 percent drop in January. Excluding transportation, orders were up 0.5 percent, also in line with the consensus. Core capital goods orders (nondefense ex-aircraft) increased 0.7 percent on the month, beating even the highest forecast of 0.2 percent, but following a sharply downward 0.4 percent decrease in January.

Transportation equipment rose 3.3 percent in February, too little to recover the 18.3 percent drop in January. Motor vehicles and parts were up 1.8 percent, and nondefense aircraft and parts rebounded 24.6 percent, partly offsetting January's 63.5 percent plunge. Defense aircraft and parts orders were up 9.8 percent.

Machinery orders rose 1.9 percent, more than erasing the 0.8 percent decrease recorded in January. Gains elsewhere included primary metals (1.4 percent) and fabricated metal products (0.8 percent), while computers and electronics were down 1.4 percent.

Total shipments advanced 1.2 percent, inventories rose 0.3 percent, while unfilled orders were flat.

Forecasters see durable goods orders rising 1.3 percent in February following a 6.2 percent drop in January that reflected a swing lower for aircraft. Ex-transportation orders are seen up a solid 0.5 percent in February with core capital goods, which were unchanged in January, expected to inch 0.1 percent higher.

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.