The Durable Goods Report came out very positive last week. The stock market rallied and investors flooded back into stocks taking the Dow to close up just short of 200 points on Friday. There is a correlation between new orders for durable goods and cheap commercial insurance. Let me explain.
First of all, durable goods are those that are usually higher priced and will last longer than 3 years. That’s sort of the standard working definition. Last week, the report came out showing a positive number of new orders. That means on average, among the 4,000 durable goods manufacturers that were interviewed, the orders were going up.
Durable goods is a sign that businesses are making capital investments into their companies. They are buying equipment for their factories, work trucks, planes, and steel beams. All this means that there will be much high priced items that will be produced. That is a good sign for commercial insurance dealers.
Now there will be a lag. If you based an investment strategy off this report to put money on commercial insurance carriers, it will take some time. When new orders come in, it takes a bit of time for them to produce it, because they are large goods. So if new orders come in today, look for these businesses to start taking commercial insurance policies out on it in about a year or two.
The premiums for commercial insurance will come down and it will become cheaper. That doesn’t mean their earnings will be less. It’s just that there will be more policyholders to reduce the monetary risk across the board. There is also an efficiency factor with large volumes.
In any case, the report was good news to investors on many levels. Mostly, it showed a sign of business confidence, that there were companies with a positive enough outlook to order capital equipment.