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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Durable Goods

What it is:

Durable goods are a category of consumer products that do not need to be purchased frequently because they are made to last for a long time (usually lasting for three years or more). They are also called consumer durables or durables.

How it works (Example):

Consumer goods are many times separated into two categories: durables and non-durables. Durables have an extended product life and are not typically worn out or consumed quickly when you use them. Since they're made to last, durable goods are often times more expensive than non-durable goods that have to be purchased repeatedly over a short period of time.

A washing machine is an example of a durable good -- it takes many years and a number uses to completely expend its functionality. The laundry detergent used in the washing machine, on the other hand, is a non-durable good -- when the bottle is empty, the detergent must be repurchased.

Other examples of durable goods include automobiles, appliances, furniture, jewelry, consumer electronics and sporting goods.

Why it Matters:

Since durable goods usually represent big-ticket items, both consumers and businesses will often times make these purchases only when they are confident they can afford them.

During a recession, when consumers have little confidence in the economy, there is a higher risk that demand for durable goods will decrease. This is important to remember when considering an investment in companies that produce durables.

What's more, orders for durable goods can indicate an increase or decrease in industrial production. That's why the Census Bureau's monthly "Durable Goods Orders" report is widely considered one of the most important leading economic indicators.

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