Wednesday, September 25, 2013

Why is the durable goods report important?

The Durable Goods report for the USA is due out this morning. This will provide figures for the manufacture of higher priced items with a useful life of three years or more.

It is regarded as an important indicator of the confidence that manufacturers have in the future of the economy, because it indicates the willingness or otherwise of businesses to invest in productive capacity. Consumers too, only spend on large ticket items if they feel confident enough to either take out a loan or to dip into their savings.

As with alls reports, however, it is the trend, month on month and year on year that is most significant in terms of validity in making trading decisions.

The Fed will be watching, of course. They will factor this month’s durable good report figures into their models to determine whether or not economic growth is such that it is safe to start to unwind Quantitative Easing (QE). Therefore you can rely on it that the hedge funds and institutions that move the FX markets will also hold off on trading decision today until the report is to hand.

It is also of significance that the US housing figures are also due out today. This is effectively a major durable good, although it is dealt with in a separate report.

After these reports come out there may be a certain amount of volatility, until such time as a consensus is reached, when the market direction, for now at least, will be established.

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