In the vast array of economic indicators at our disposal, the manufacturer’s new orders for durable goods and the average weekly hours of production and nonsupervisory employees stand out as critical barometers closely watched by economists, policymakers, and market participants. Let’s delve deeper into what these indicators reveal about the undercurrents of our economy.
The first point of interest is that new orders for durable goods have reached their highest level in decades. This indicates a surge in consumer confidence and willingness to spend, reflecting a rise in corporate investment appetites. Durable goods—products like cars and household appliances that are used over long periods—tell us that when new orders rise, it suggests the entire economy is expanding and the market is buoyant.
However, the expansion of the economy doesn’t necessarily translate into a linear increase. As the graph illustrates, the journey of new orders for durable goods isn’t marked by consistent growth but rather ebbs and flows like waves on the economic tide. The precipitous drop during the 2008 financial crisis laid bare the fragility of the economy. Yet, the recovery that followed, particularly after 2012, has been nothing short of remarkable, with a sustained upward trajectory.
In contrast, the trend in average weekly labor hours tells a different story. This measure reflects the stability of the labor market and the balance of supply and demand for labor, showing a much steadier course. When the economy slows, firms tend to reduce hours rather than lay off workers, making this indicator less volatile than new orders.
While at first glance, there seems to be no direct correlation between these two indicators, a more intricate relationship is at play. After a rise in new orders for durable goods, there’s a tendency for average weekly labor hours to increase, albeit with a certain time lag. This is because once new orders are placed, there’s a cascade of steps required before production can ramp up, including planning, procurement of materials, and adjustments to production lines. Consequently, there’s often a lag between when orders increase and when labor hours start to climb.
Looking at the recent economic landscape, new factors such as the COVID-19 pandemic and supply chain disruptions have influenced these indicators. For instance, in some sectors, despite an increase in orders, production has not kept pace due to labor shortages or logistical issues, and the increase hasn’t been reflected in the number of labor hours.
The economy is always in flux, with many variables interplaying in complex ways. The indicators of new orders for durable goods and average weekly labor hours serve as keys to unlocking and understanding these changes. Tracking these can gauge the health of the economy and enable us to make better-informed decisions for the future.
