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What’s it: Durable goods are a category of tangible products with long economic life, usually more than three years. You can use or consume them repeatedly and continuously during their economic life. During that period, you can continue to use them with little or no loss of utility or benefit from the product. Manufactured products such as washing machines and cars are great examples of durable goods.
Because they have a longer useful life, durable goods are usually expensive. Some consumers buy it not in cash but on credit. Also, durable goods shopping is a secondary type of purchase. When the budget drops, they are the first option for savings.
Difference between durable goods and nondurable goods
To differentiate between the two, I’ll make a list to make the explanation easier. The characteristics of a durable good are:
- It has a long life cycle, where the useful life is more than three years. It does not wear out, break down, or rot quickly. It is not wholly consumed once and provides optimal benefits for at least three years. And after that, the benefits may decrease, but the consumers can still use it. Consider a car as an example.
- Consumers rarely buy it. They can use it over and over again without losing any significant benefits.
- Prices are usually more expensive. Thus, consumers often buy several items, such as cars, on credit instead of cash. Also, they usually rely on bank loans.
- Some consumers prefer to rent some durable goods instead of buying them because they are expensive.
- Consumers buy to meet secondary or tertiary needs, depending on their income level. Thus, such items are less essential for survival. Some may be to show wealth status like a luxury car.
- Buying durable goods falls into the category of demand for investment goods. That means we sacrifice money now to receive future benefits.
- Consumers carefully plan to buy. Usually, they will adjust to financial and job conditions, and, in general, economic conditions.
Characteristics of a nondurable good are:
- The useful life is short, usually less than three years. In fact, for some products, such as food, they are only a few days old and consumed once. Meanwhile, some others are longer, and they are good nondurable.
- Consumers regularly buy because nondurable goods have a relatively short lifespan. So, consumers will buy them more frequently, maybe once a week.
- Prices are relatively cheap. To buy it, consumers usually pay in cash rather than on credit or rely on loans.
- Nondurable items such as food and beverages are not rented.
- Consumers usually buy it to meet primary needs, such as food and beverages. They are essential for survival.
- Buying nondurable goods fall into the category of demand for consumption goods. This means that consumers spend money to receive the benefits as soon as possible.
- Consumers are less planning for spending. In fact, for some items, they buy them impulsively. I mean, they buy when they see them without any prior intentions or plans. An example is buying candy when you are near the checkout counter.
Examples of durable and nondurable goods
The consideration of the classification of durable or nondurable goods is the useful life of the goods. Thus, we do not differentiate whether goods are sold to the household sector or the business sector. It is important to provide examples of each.
Examples of durable goods include:
- Consumer electronics: laptops, cellphones, televisions, and radios.
- Home and office equipment and furniture: tables, chairs, washing machine, rice cooker, refrigerator, and air conditioner.
- Garden tools: shovels, weeds, garden hoe, pruning shears
- Motorized vehicles: cars and motorbikes.
- Photographic equipment: cameras and equipment for taking photos.
- Sports equipment: bicycles, helmets, golf sticks.
- Accessories: handbags, wallets, luggage, jewelry, and watches.
- Home furniture: upholstery, carpet, and wall coverings.
- Household and specialty equipment: cutlery, cookware, glassware, crystal, silverware, cutlery, kitchen utensils.
- Production machines and equipment: robots and heavy equipment.
Examples of nondurable goods:
- Food: vegetables, fruit, meat, and canned food
- Beverages: soft drinks and mineral water.
- Household and office products: soap, detergent, shampoo, tissue, ink, and paper.
- Personal products: cosmetics and perfumes.
Durable vs. capital goods
Capital goods are man-made goods. They are not for final consumption but are useful for helping produce other goods. Therefore, they are sold for the business sector, not for households. Machines, robotic equipment, and vehicles are good examples.
Capital goods are durable goods. It differs from office items like paper and ink, which run out quickly. We call expenditures on capital goods as investments. The business receives its benefits in the long run, over the economic life of the goods.
Importance of durable goods
Economic indicators. Expenditures on durable goods are an important economic indicator. This is a signal of optimism and pessimism regarding future economic conditions.
Households and businesses are more cautious and require careful planning to buy durable goods. Households consider their current and future financial and employment conditions. Businesses consider their current and future profit condition. And, in general, both have to do with the future prospects for the economy.
Stock investment. For this reason, investors often track orders for durable goods to provide guidance on the economic outlook. Purchases of durable goods generally indicate the economy is improving as households and businesses are optimistic about their finances. Investors then start collecting company shares and expect an increase in share prices in the future.
The opposite condition applies when the economy is weakening. Investors usually reduce their investment allocation in the stock market. They secure money by buying safer assets such as government bonds.
Economic cycle. During the initial recession, spending on durable goods fell. That is the main target for savings. Households delay purchases because they see their financial and employment prospects deteriorate.
The businesses will then respond. They are likely to cancel purchases of capital goods considering weak consumer demand.
Meanwhile, at the initial economic recovery, households were optimistic about their jobs and income. They likely started ordering some durable goods. During this period, borrowing costs are usually low as the central bank maintains low-interest rates to pull the economy out of recession.
Businesses respond to economic recovery by increasing production to meet increasing demand. They employ temporary workers or increase overtime. During this period, they usually have not recruited full-time workers because it is more expensive. They will further observe the prospect of demand. For this reason, the unemployment rate during the initial economic recovery usually remains high.
