DURABLE GOODS

Durable goods are tangible commodities that will last more than a year with normal usage. Durable goods comprise two categories: consumer and producer durables. Examples of consumer durables are cars, boats, furniture, televisions, appliances, and fine jewelry. Producer or capital durables include machinery and equipment.

In the 1920s immediately following World War I (1914–1918) the United States witnessed a consumer durables revolution. Businessmen invested sharply in production facilities of many kinds. New manufacturing plants made possible a huge expansion in the output of durable goods, particularly automobiles, refrigerators, radios, washing machines, and vacuum cleaners. Individuals no longer restricted their spending to the amount of cash they had on hand. They bought on time. Finance companies specialized in providing installment credit, and buyers made wide use of the technique to purchase durable goods.

The role of durable goods in the business cycle, the ups and downs of business activity in the United States, are extremely important. The output of durable goods shows greater variability over the business cycle than output of other goods. An automobile is a "big ticket" item and lasts a number of years. Since it is a long lasting good, its purchase can usually be postponed for long periods. The purchase is usually with borrowed money involving the payment of interest. In a recession, usually accompanied by high interest rates, purchases of durables will fall dramatically. In contrast during a time of expansion with low interest rates, durables are in high demand. On the other hand, the purchase of non-durables, like bread, milk, and beer, will change minimally over the business cycle.

Key statistics, or indicators, are used to analyze and forecast changes in the business cycle. The Gross Domestic Product (GDP) is the market value of all final goods and services produced within a certain time period. A key component of the GDP is personal consumption expenditures, which include durable goods expenditures. Durable goods alone accounted for approximately 8 percent of the GDP in the 1990s. Increased spending for durables contributes to a positive economic forecast whereas a decrease points to an economic slowdown.

See also: Capital Goods, Consumer Goods