In this week’s EconMinute, we’re talking about new orders of durable goods.
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New orders of durable manufactured goods are considered a leading indicator of future economic activity.
If consumers and businesses are placing fewer orders for cars, furniture, machinery, steel, tools, and other durable goods, that could point to softening demand and, ultimately, slower economic growth down the road.
The Bank of Canada is aggressively raising interest rates to curb inflation and cool the Canadian economy. We look at new orders of durable goods to see whether there is any evidence of a coming economic slowdown.
What does the data tell us?
- New, non-aerospace orders* were flat pre-pandemic and, after the initial drop, recovered quickly but did not grow significantly.
- New orders began to rise last fall, increasing by 29% from September 2021 to March 2022.
- Gains were widespread, but motor vehicles and parts (74%), and computers and electronics (60%) led the way.
- More recently, new orders have begun to fall back, dropping by 11% between March and July.
- New orders for computers and electronics (37%) and wood products (17%) have dropped the most.
It’s important to note that these numbers are not inflation-adjusted, meaning that rising prices, rather than an increase in volume, were likely a main driver behind the initial September 2021-March 2022 surge.
However, that also means that the 11% decline since March has come despite those same rising prices. In other words, the dropoff in new orders is significantly more pronounced than headline numbers suggest, and could signal tougher economic times ahead.
*Because it takes a long time to build a plane, new aerospace orders tend to be both sporadic and very large. That can distort overall trends.