How to Trade the Durable Goods Number

10/14/2009 12:01 am EST

Focus: STRATEGIES

S. Wade Hansen

Co-Founder, Profiting with Forex (PFX) and Learning Markets

Once a month, the US Census Bureau gives us a glimpse into what the future demand for big-ticket items is going to be by releasing its durable goods numbers. Traders love this information because consumers only buy durable goods when they are confident in the economy and in their ability to pay for the big-ticket items.

Trading the Durable Goods Number

The more durable goods consumers are purchasing, the stronger the economy is and the higher stock prices will typically go.

The fewer durable goods consumers are purchasing, the weaker the economy is and the lower stock prices will typically go.

Of course, there are certainly other factors you should be looking at when determining consumer demand, so don't read the news in a vacuum.

What Is the Durable Goods Number?

The durable goods number reports the amount of purchase orders placed with manufacturers for durable goods. Durable goods are hard products—such as automobiles, computers, and appliances—with a life expectancy of more than three years.

You can see the most recent durable goods report here.

Appliance Stocks to Watch

The durable goods number is especially important for shareholders in the nation’s largest appliance companies. When you see the durable goods number rising, it is a good sign for appliance companies and will typically have a positive impact on the price of their stocks. When you see the durable goods number falling, it is a bad sign for appliance companies and will typically have a negative impact on the price of their stocks.

Here are a few of the appliance companies you should keep an eye on:

1) Whirlpool Corporation (NYSE: WHR)
2) The Black & Decker Corporation (NYSE: BDK)
3) Snap-on Incorporated (NYSE: SNA)
4) Pentair, Inc. (NYSE: PNR)

By S. Wade Hansen of LearningMarkets.com

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