What it is:
How it works/Example:
Consumer goods are often divided into two categories: durables and non-durables. Durables have an extended product life and are not worn out or consumed quickly when you use them. Since they're made to last, durable goods are typically more expensive than non-durable goods that have to be purchased over and over again.
A washing machine is an example of a durable good -- it takes many years and multiple uses to wear it out. The laundry detergent used in the washing machine is a non-durable good -- when the bottle is empty, the product is depleted and must be repurchased.
Other examples of durable goods are automobiles, appliances, furniture, jewelry, consumer electronics and sporting goods.
Why it matters:
Since consumer durables usually represent big-ticket items, both consumers and businesses will typically make these purchases only when they are confident they can afford them.
During a recession, when consumers have less confidence in the economy, there's an increased risk that demand for durable goods will decrease. This is important to remember when investing in companies that produce durables.
Also, orders for durable goods can foreshadow an increase or decrease in industrial production. That's why the Census Bureau's monthly "Durable Goods Orders" report is generally considered one of the most effective leading economic indicators.