New Orders of Durable Goods Don't Forecast Shipments

Daniel Bachman ()

Business Economics, 2011, vol. 46, issue 2, 88-98

Abstract: Despite current media reporting that assumes new orders for durable goods (NDOG) are an indicator of future economic activity, the new orders series does not improve forecasts of durable goods shipments. This result is true for both aggregate and industry-level measures of new orders, using several econometric techniques. New orders may have been a more useful measure of future shipments in the 1960s than today. This failure may be caused by changes in manufacturing methods. In addition, the structure of the economy may have made new orders less relevant. Also, the new orders series may suffer from measurement problems. Moreover, parameter uncertainty and instability may overwhelm any available information in the new orders series. Analysts should consider reducing the emphasis placed on NDOG as a measure of future economic activity.

Date: 2011
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