Durables Goods Orders: A Leading Indicator for Stock Prices?

Interesting chart from Mike Panzner regarding durable goods and the SPX. Note that Real spending on nondurable goods was flat in August.




Before getting overly excited about this, I would want more info on three distinct questions: 

1) Does the correlation go back beyond 1998? Is this merely a recent phenomena, or does it have a deep and broad history?

2) A fall off in Durable Goods would make sense as an indicator of both concurrent and future economic slowing, profit cooling, and equity price retracement. However, is this merely a decade of coincidental correlation, or is there a true causative factor at work?

3) There seems to be a year lag from September 2001 to 2002, from when Durable Goods orders picked up to when the market started moving higher. Is this historically typical? Has the same lag occurred in the past with Durable Goods falling (as they have since September 2006)?

It does seem to be an intriguing parallel . . .


UPDATE October 2, 2007, 5:52am

Several emailers and commenters have directed me to the Dallas Fed’s collection of charts, especially this one:


Here’s another view: The long term relationship between Durable Goods ex-Transportation and the broader stock market has been ambiguous.


Significant divergences between the two can be observed in 1984, 1989, 1995 and 1997 for example.

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  1. Paul Stiles commented on Oct 1

    Hello Mr. Ritholtz,

    Very good questions regarding the figure. I am running into charts like this more frequently and often wonder the same things. How is it possible to compare the current state of affairs with the top of a market bubble that this country hasn’t seen since the 1920’s? Are we likely to see such a severe bear market in the near future? Probably not, but I guess it depends on who you ask.


  2. karl smith commented on Oct 1

    I can tell you this from an economic point of view. Recessions essentially cannot occur without a substantial drop off in durable goods.

    Nearly all of the fluctuation in potential GDP since WWII came from housing and durables goods. Of the two only durable goods tends to produce enough job loss to initiate a full blown recession.

    The trend has been housing sparks the recession durable goods sees it through. If durables hold up then you can pretty much take it to the bank that there will be no recession.

    To my knowledge there has never been a false negative on durables. Its FRED code PCPG if you want to check it out.

  3. John commented on Oct 1


    It’s almost always important to have comparisons to the market over several DECADES to determine if there is a chance at being meaningful. Every economic and market cycle is different to some degree, so reviewing a correlation for only ten years is just a short term look that may have no value, as you suggest.

  4. Eddie commented on Oct 1

    Durable goods are still essentially in positive territory, so the parallel is not there. Perhaps the rise in SPX will be slower, but untill the durables show sustained negatives, I would not put much into it.

  5. Bob Dobalina commented on Oct 1

    Oh, geez. Run some time series of whitegoods sales (I know that whitegoods are only a subset of durable goods, of course) versus the housing market and you’ll see that the chart in Barry’s post is a little pointless. You’re more or less charting an intermediate indicator, here.

  6. Fred commented on Oct 1

    Agree with Bob…while it is interesting to see this (possible) relationship over these ~10 years, what does it look like on a longer time frame?

    The same can be said looking a the US Dollar chart. From ’99 through today it looks like a total collapse, but if you step back from the trees, we see a return to prior trading levels. Data mining is a tool for fools. It’s ok if the user states that this study, looks at a limited period of time, and MIGHT be creating a correlation, but…

  7. dukeb commented on Oct 1

    So how about a “gut check” then, if the tools for fools are to be cast aside? I’m both a bull and bear, but honestly, something feels slimy about today’s action to the upside. Kind of like the overspray I noticed on the grass while looking at a house for sale 2 years ago. Or am I missing somthing today???

  8. Richard commented on Oct 1


    Word To The Wise…

    It is:

    One “phenomenon” (“on” at the end)
    Several “phenomena” (a” at the end)

  9. Costa commented on Oct 1

    chart after chart and data after data shows things are bad but yet the market keeps going up

  10. Fred commented on Oct 1

    “…am I missing somthing today???”

    Pervasive negativity/fear have kept many out of stocks (or short)…the bear’s case “makes so much sense”. Banks and financials are showing that the black hole (boogie man) is not the killer many expected. The recession/bear market argument has been a very crowded position.

  11. Eddie commented on Oct 1

    The ‘Wall of Worry’. :D

  12. km4 commented on Oct 1

    Gee isn’t the stock market phe·nom·e·nal !

    Pronunciation: fi-‘nä-m&-n&l

    relating to or being a phenomenon as

    a) known through the senses rather than through thought or intuition

    b) concerned with phenomena rather than with hypotheses


  13. dukeb commented on Oct 1

    “The recession/bear market argument has been a very crowded position.”

    But so has the bull argument, no? In fact, maybe that’s what’s bothering me….the ups and downs feel like arguments being made (won and lost and won and lost) rather than honest ups and downs. Don’t get me wrong; I love volitality and remember being bored out of my skull a few decades ago when everything seemed to go flat for a while. But my gut feel has turned me into a strict day trader for the past month and that’s for the first time ever. I don’t want to own anything overnight–bull or bear postions.

  14. Estragon commented on Oct 1

    karl smith,

    Note that the chart you reference is for consumption, not orders.

    In that vein, it’s interesting that although orders have turned down, unfilled orders are at their highest absolute level since first stated on a NAICS basis, and the highest relative to shipments since 93 or so. Unfilled orders to shipments fell sharply in the early-mid 90’s expansion, fell less sharply from the mid90’s to 2000 bubble, rose through the 2001/02 recession, fell through the 2003/05 expansion, and have been climbing sharply since mid05.

    A quick look at roughly equivalent SIC data for 1960-1991 seems similar. Ratio peaks in slowdowns.

    This seems counterintuitive. You’d think that unfilled orders would drop off during recessions and grow during expansions.

    OTOH, maybe what this is hinting at is that as expansions mature, capital investment gets stranded in now saturated businesses while the “next big thing” goes begging for a while until a recession brings about a restructuring. IF that’s the case, we’re ripe for such a restructuring.

  15. skateman commented on Oct 1

    “Banks and financials are showing that the black hole (boogie man) is not the killer many expected. The recession/bear market argument has been a very crowded position.”

    With huge housing inventory still going up and the bulk of the ARM resets not until the beginning of 2008, the banks and financials (and the US economy) still have a long way to go. Further, there will be a lag between the time that most of the ARMs reset and homeowners actually default and go into foreclosure. And with housing construction already plummetting, commercial won’t be far behind. That said I remain fairly positive on larger cap, higher quality companies’ stocks particularly on a relative basis now that the private equity put has been pulled out from under the small/mid caps.

  16. Fred commented on Oct 1

    Estra…what might “just in time” inventory mean in light of your analysis? Productivity enhancements in order flow have to be considered.

  17. Estragon commented on Oct 1

    Fred – “Banks and financials are showing that the black hole (boogie man) is not the killer many expected”

    Hmmm… maybe you have that backwards. Banks and financials may be saying the black hole is unexpected. There’s no way that little wiggle in the summer had a financial black hole priced in.

  18. Estragon commented on Oct 1


    I dunno. Why would unfilled orders be running up now? I have to assume that capacity isn’t in place to fill the orders, and the types of production are shifting to long cycle (eg. power stations) from short (eg. washing machines).

    In the current environment I’d say we need to see some realtors and mortgage brokers get busy building some just in time inventory of whatever the unfilled orders are for ;-)

  19. Fred commented on Oct 1

    “that little wiggle in the summer”

    That’s a GOOD ONE…lol

    …a 20% “wiggle”…. The underperformance from the banks over these issues have been baked in “at the DNA level. These stocks have been TOXIC! Grave dancers were scoffed at on these pages when they bought.

  20. Fred commented on Oct 1

    “Why would unfilled orders be running up now?”

    Agree on the cycle points. We might also be looking at shortages of components in the goods ordered….pent up demand. Interesting points though.

  21. algernon commented on Oct 1

    Like housing, durable goods are often bought with borrowed money. One would logically expect them to be systematically affected by real interest rates.

    Aren’t they, or their subset non-defense capital goods orders, included as one of the leading indicators?

  22. Estragon commented on Oct 1


    Take a look at a long term log scaled BKX chart. This summer wasn’t a barnburner in relative terms. 1998, for example, was about twice as bad, and that was mostly about Asian currencies, a Russian default, and a blown up hedge fund. If markets seriously discounted a meltdown in US and European banking, the carnage would be far worse.

  23. hal commented on Oct 1

    I dont’t know–last year we were looking at the housing chart vs spx as a leading indicator and that has not panned out yet. I guess a few hundred trillion of derivatives, growing margin accounts, increased money supply and lower rates gives the equity and bond markets a handicap.

  24. dukeb commented on Oct 1

    ….the market as junkie theory. might be something to that. look at how long keith richards has been around!

  25. VJ commented on Oct 1

    All over TV today, it was “the worst is over“, “it’s manageable“, “the end is in sight“, and of course “bad news is good news“.

    What is this, ‘Groundhog Day‘ ?

  26. Dblwyo commented on Oct 1

    As Barry and others have pointed out correlation is not causation – though in this would it were so and my bearish positions would be getting the crap kicked out of them & me. DG Order x-Aircraft are a pretty good indicator of capex spending which is in turn based on business’s anticipation of future capacity requirements and consumer demand. Check out Joseph Ellis’ “Ahead of the Curve”. If you’d like to see all the high-frequency montly data and how it relates and what the trends are just put up a fairly complete set of charts on consumption, sales, DG orders, New Homes, etc. visible via http://tinyurl.com/2zzmfm.
    Preceding post on the market echoes Justin Lahart’s WTF colum in today’s Journal.
    What a marvelously confusing world, sigh….

  27. F commented on Oct 1

    It’s not leading at all. When you compare the first derivative (% change) to an actual curve (s&p 500), and it fluctuates in a roughly cyclical way (like a sine wave), the first derivative always leads the function.

  28. km4 commented on Oct 1

    1997 – 2000 Stock market Bubble
    2001 – 2006 Housing Bubble
    2007 – ? time for another Stock market Bubble

    I mean how can the US economy and the financial shills stay afloat without pushing bubbles.

    And American lemmings will follow them again off the cliff….

  29. upchuck commented on Oct 1

    The bubble is in whining cry babies calling bubbles.

    The bubble is in Greenspan puking Pimco pablum out his piehole!

    N’uff Elmer!

  30. rvb commented on Oct 1

    Yeah, a chart like this looks neat and all, and people could get scared, but what does it look like, say, back to 1950?

  31. brion commented on Oct 1

    “We might also be looking at shortages of components in the goods ordered…..pent up demand”

    pent up demand…..
    don’t know if you were referring to the american consumer or not, but if so, that was worth a chuckle….
    we are such a self-denying people.

    I don’t think it’s a stretch to extrapolate off Barry’s chart there at all….there’s no “hmmm” moment when viewing a lit fuse crawling toward a pile of dynamite.

    Happy Halloween mr. markets.

  32. chad commented on Oct 1

    i think it does matter………..although i also like what david (whatshisname-sorry) said on K&C today – its the big caps and tech – pull up a chart of the R2K and the DIA and QQQQ – the small caps are clearly underperforming………their markets are at home………

    it just depends on the dynamic – weak dollar is huge boom for the megacaps, and lest we forget these are cap weighted indexes. if we were in a strong dollar period, and the U.S. were the growth engine, yeah this would matter more, but we’re the ones getting pulled in this cycle so its not gonna mean as much

  33. rickrude commented on Oct 1

    How far back does this correlation go ??
    So what is the use of this indicator ??
    Do I mortgage my house and short the
    DIA because of this fabulous indicator ??
    If not, what is the use ??

  34. whipsaw commented on Oct 1

    What I see is a chart with some noise on the left, followed by three distinct crossovers in ten years one of which is unresolved. Not very compelling, especially since it is ‘ex-Transportation.’ What does that mean and why would it be applied? I can think of $14 billion+ in aircraft carriers that were ordered in that time, what happened to them and their complements of aircraft, aren’t those ‘transportation?’ The more I see of Panzner’s stuff, the more I think that it is just intended to fit whatever curve he is espousing in the interest of selling some books.

    At any rate, I am entirely satisfied that it has nothing to do with where the markets are going over the next 3 months- the big boys will drive things up regardless because they want their bonuses. Whatever is going on in macro-world will just have to wait until at least the first of the year, there are choppers in the air to make sure of that.


  35. la grande poussee commented on Oct 1

    “Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.

    One of the world’s leading experts on credit derivatives, Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years. He seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch — and I expected him to defend and explain the practice.

    I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the “third inning.” This was pretty amusing, it seemed, judging from the laughter. So I tried again. “Second inning?” More laughter. “First?”

    Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we’re actually still in the middle of the national anthem before a game destined to go into extra innings. And it won’t end well for the global economy.” – John Markman – MSN Money

  36. whipsaw commented on Oct 1

    la grande poussee quoted somebody else who said:

    “Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we’re actually still in the middle of the national anthem before a game destined to go into extra innings. And it won’t end well for the global economy.” – John Markman – MSN Money”

    That was either quoted or linked to from here last week, you are running behind. I think everybody should go short based on it, I could use the money! Heheheh.


  37. Eclectic commented on Oct 2


    I admire your unrepentant bullishness. Seriously, I’m not being condescending.

    However, I have always been more amazed at those with your perspective that, without fail, can ignore anything historical that opposes their views.

    You’ve observed the chart displayed as the basis for this topic, and you’ve taken the position of attempting to negate its implications philosophically by suggesting we step back from the “trees” and take a wider perspective.

    Okay, I’ve done that… and the period from 1998 until today has been a pretty remarkable period in my personal forest of trees. I’ve seen my children (3 year range in age) finish high school, finish college, become professionals, get married… and present me with first grandtrees now pushing up into anno numero tres. I cannot escape the conclusion that the period has represented a wide historical perspective. Although, admittedly, I’ve often come here and explained that most of human history did in fact occur prior to “These Boots Are Made For Walking” so I may be pinching my personal history a tad.

    But, can’t you at least accept a thesis that someone with your current perspective might have appeared on a similar blog as TBP and said the same thing about the signal appearing on the consolidated charts in approximately 1999-2000?.. only to then watch a 401k get sucked down dramatically for, lo, 2 long years?

    Or… is it merely that even you’d conclude that such a person in 99-00 would’ve ultimately been right today, by sticking to his guns, then, and living through the near 50% decline to watch the market ascend, with reinvested dividends, to new heights?… Is that the wider perspective you want to share with us?

    I guess what I’m coming to is a question: Is there anything at all that could shake you from your bullishness?… Or further, are you simply an intellectual terrorist and come here to chastise unrepentant bears for their lost opportunity costs… and would only abandon them to turn and do the same to unrepentant bulls once, and if, the market rolls over and slides water-torturingly down?

    Help me out please. I’m trying to understand the folly of my misconceptions and shortcomings.

    Were you on this blog in 99-00 and saying that, or have you been a member here for a shorter duration than me. I can’t remember but I think I’m fresher than 05.

    BTW, I have no idea which way the market will go from here. I’m just attempting to understand how you can be so apparently confident that it’ll go up.

    Lastly, can you share your perspective on what we ought to look out for in anticipation of having to be bearish?… if ever we should be bearish?

  38. Eclectic commented on Oct 2

    Well, Son-of-a-Gun, you Dutch sweetheart, you!

    Hey Fred!… Lookie what Maarten scratched up:


    Zae enuff widely dispersed history for you there?… Or… Zere still too many trees blockin’ the view?

    Hmmm?… (Eclectic ponders the chart on a wide angle view)… Let’s see… hmmmm?
    Almost every single recession is preceded by big dives in durable goods. I say, I must wonder at any possible connection between those two facts. And, when I visualize the dishwashers, a/c and furnace units, microwaves, Greenspanian tubs, hotwater heaters, and every other sort of buyitandfinanceitfor5-or-longer household gizmos (forget planes and cars) that all take the deep six with that downward dashing line, I begin to figure that Mr. Kotoc* is not quite right enough in the short run to be right enough, long enough.

    I know one thing, Fred… we’ll have an opportunity in a few months to test your unstated theory that that big dive in durables isn’t much to worry about.

    Now, to you* Mr. Ko-“we-only-buy-ETFs”-toc:

    Yes, as you said Monday night in Kudlovia, the U.S. economy is “not a closed system any more.”

    But it’s still the Big Dog on the street:

    Just to illustrate the point. The information doesn’t have 2007 on it yet, but you’ll notice that China, in the most massive opportunistic one-sided boom that’s ever occurred in human consumer history, has gained a mere 3% in share of worldwide GDP from 2000 through 2006 (about 10.92% to 13.99%) while during the same time the U.S. share only declined barely over a single percent (21.68% down to 20.57%).

    When you flip on CNBC at 4 A.M. and listen to every commentator in Britain and the Eurozone exclaiming about upcoming econometrics for ‘Merca, it’s because Britain’s share of WW GDP is a tad over 3% (declining), Germany’s is just over 4% (declining), and France’s is just under 3% (declining). And also, use the same linked data files and examine per capita GDP and it’ll only compliment my point. U.S. consumer behavior can have a dramatic impact on WW GDP.

    On a relative basis then, they seem to have good reason to talk up the States so early in our morning, because that’s *still* the Big Dog on the street (real and metaphorical).

    You make a good point about WW economic robust growth, and I buy the notion that U.S. share will continue to decline, and that’s a good thing when viewed as a corollary for healthy economic development WW… But, here’s the scoop: Durables in the U.S. take a big nose dive… Worldwide GDP will take a nose dive too. That may still be true in 20 years.

    You’ll have to be more wily than that to explain away a durables drop:


  39. karl smith commented on Oct 2


    Sorry I missed the new orders part and that it was ex-transportation. That’s probably worthless and from a forecasting point of view dominated by yield curve and building permits.

  40. Eclectic commented on Oct 2

    Note that my remarks about the newly added Dallas Fed chart are related to the economy and not necessarily to the stock market.

    However, the ambiguity you mention is, to my mind, possibly overlain with the phenomenon of the Baby Boomer investment into the stock market that had its most dramatic effect during the approximate period of 1982 to the dot com bust. Boomers were in the middle of their productive years and their ages during this period represented a group that began the period in their late-20s to mid-30s, and currently they are in their mid-to-late-50s. I suspect they have a different perspective now. They may not yet know their perspective has changed because they haven’t been challenged to now.

  41. Fred commented on Oct 2


    I will be bearish when stocks become overvalued (relative to bonds)…or when I personally “see” a true recession coming (earings collapse rather that a mid cycle slowdown)…or when being bullish is popular (and Joe Sixpack is margined in stocks)…or when the Fed is intent on killing stocks (raising rates).

    I see NONE of this right now. What I do see is pervasive bearishness — and fear.

    Do you get fear at the tops?

    That all said, I do hedge my positions, and in fact am buying some QID (Ultra Short QQQ) for the month. Historically October has very poor returns “in years ending in 7”.

    I hope this helps.

  42. Fred commented on Oct 2

    I forgot to mention that I find the charts in this post very interesting, and I do appreciate the longer view on the subject.

    I count at least 4 drops in DG orders that did not preceed a recession. I’d say that these conditions can coincide with a recession, but hardly guarantee one.

    Is it not possible that we are entering a mid cycle slowdown, as opposed to a recession?

    Please read this:


    “Recessions, after all, are among the rarest of economic episodes. They’re often expected but rarely emerge. Whenever there’s a big hiccup in job growth, retail sales, a credit crunch or a downdraft in the stock market, fears of a broad, long-lived decline in U.S. output accelerate.

    Veteran analyst Philippa Dunne reports that this month the number of stories in The Washington Post and The New York Times mentioning “recession” has risen to 4.4 per day, up from less than two a month ago and rising at the highest rate since 1987. Meanwhile, a survey released this week said a majority of U.S. hedge fund managers believe a recession is likely in 2008.

    But in fact, the U.S. economy is unbelievably diversified, and it takes problems the size of nine Mack trucks, all working together, to knock it down once it gets going. And even then it’s hard to keep the American economy down for very long, as the average length of a recession in the past five decades has been just 11 months, while the average length of an expansion has been six years.”

  43. Eclectic commented on Oct 2

    Fred, you’re a man with well expressed convictions and you hold your own.

    When I was 30 I didn’t know a top from a bottom and didn’t care. As it is now I may not know the difference, even yet… but I’ll admit I’m scared.


  44. Eclectic commented on Oct 2

    Fred, have you ever been caught in a market downturn… a significant one?

  45. Brad commented on Oct 2

    Wow, most of you are making this much more difficult what with derivatives and correlations LOL. Just look at a simple chart of YOY earnings growth in the S&P 500 vs. the market. The 2 data series do NOT move together. The simple truth is that:
    1) earnings declines that are not severe can result in big gains for the market if P/E ratios expand – this is what happened in 1997.
    2)The US economic fundamentals will have a smaller effect on the US stock market because a larger percentage of US companies earnings are coming from internationally stronger economies.

    The simplest solution is usually the best.

  46. Fred commented on Oct 2

    I cut my teeth in 1987.

    Thanks for the kind words.

    TBP will continue to be required reading for anyone serious about the markets. Eclectic…you add enourmous rigor to Barry’s discussions….

  47. Justin commented on Oct 2

    Anyone, that can’t see that over-seas markets are cracking, (China, will lag the others because of its status as command/open economy.), must be on a different planet. Soon the conductor will have to play the only sheet of music available! (Mozart’s Requeim)

  48. Fred commented on Oct 2

    Justin…pull up a chart of VEU (Vanguard FTSE All-World (ex USA) ETF).

    The only thing I see cracking is the spine of those shorting this.

    Nice inverse head and shoulders breakout.

  49. Eclectic commented on Oct 2

    Thanks Fred. I appreciate your perspective.

  50. Patricia Kolb commented on Oct 3

    Dear Barry Ritholtz,

    I love the Big Picture and always learn from it. In return I need to tell you one small thing that may be useful for you to know: the word “phenomena” (one of your favorites) is PLURAL; the SINGULAR form is “phenomenon.”

    Thank you for the Big Picture!

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