Durable Goods Definition
Durable goods are a category of tangible (physical) products that last three years or longer. Typically, these goods are a bit more expensive because they tend to last for long periods of time. Durable goods are also known as durables and consumer durables.
Durable Goods: Examples for a Business
Durable goods owned by a company or business are included in company assets and should bring value to a company, though of course are continually depreciating. These can be items like:
- Machinery
- Property
- Furniture
- Technology
- Aircraft/Vehicles
If companies produce durable goods for consumers, these kinds of products are listed as inventory or work in progress (WIP) on the balance sheet.
Consumer Durable Goods Examples
Consumer durable goods are similar to company owned durable goods, but extend to a few more practical items. Consumer durable goods are purchased and used repeatedly or continuously for an extended period of time.
Examples of consumer durable goods include:
- Cars
- Appliances
- Furniture
- Jewelry
Durable vs Non-Durable Goods
Consumer goods are split into two categories: durables and non-durable goods. Durables have a long product life and are not worn out or consumed quickly. Non-durable goods have to be purchased over and over again.
Examples of non-durable goods include:
- Food
- Medications
- Clothing
- Gasoline or
- Any item that lasts fewer than three years.
Understanding How Durable Goods Fit into the Economy
The United States Census Bureau’s monthly 'Durable Goods Orders' report is an important economic indicator. Economists and financial analysts watch the sales of durable goods because they often require large sums of cash. Increases or decreases in the sales of durable goods are considered a significant leading indicator of economic strength.
If the economy is doing well, economists often see a rise in the sale of durable goods because consumers feel confident in being able to afford products. During a recession, when consumers have less confidence in the economy, durable goods sales will decrease and the stock value will follow.
For example, just before the 2001 and 2008 recessions, the sales of durable goods dropped. This is important to remember for two practical reasons:
- If you’re considering an investment in companies that produce durables, you’ll want to look at the increase or decrease in sales.
- The state of the economy has a big impact on personal finance decisions. A drop in durable goods sales can be an indicator of an upcoming recession, which can better inform your choices.
