US: Dallas Fed Mfg Survey

Mon Mar 30 09:30:00 CDT 2015

Consensus Consensus Range Actual Previous
Bus Activity Index -9.0 -12.0 to -8.0 -17.4 -11.2
Production Index -5.2 0.7

Texas factory activity declined in March. The production index, a key measure of state manufacturing conditions, fell to minus 5.2, posting its first negative reading in nearly two years.

Other measures of current manufacturing activity also reflected contraction in March. The new orders index pushed further into negative territory, coming in at minus 16.1, and the growth rate of orders index remained negative for a fifth consecutive month but edged up to minus 15.3 in March. The shipments and capacity utilization indexes slipped to more negative readings, minus 8.7 and minus 6.4, respectively.

Perceptions of broader business conditions were rather pessimistic for a third month in a row. The general business activity index declined 6 points to minus 17.4 in March, while the company outlook index was largely unchanged at minus 4.

Labor market indicators reflected slight employment declines and shorter workweeks. The March employment index dipped to minus 1.8, its first negative reading since May 2013. Thirteen percent of firms reported net hiring, compared with 14 percent reporting net layoffs. The hours worked index has been gradually declining for six months and came in at minus 5.3 in March, down from minus 1.6 in February.

Prices declined in March, and upward pressure on wages continued to ease slightly. The raw materials prices index fell to minus 9.4, its lowest reading since May 2009. The finished goods prices index pushed further negative to -9.8, also reaching a low not seen since 2009. The wages and benefits index came in at 15.6, down from 16.8 in February.

Expectations regarding future business conditions remained fairly weak in March. The index of future general business activity edged down to 3, while the index of future company outlook inched up to 12.8. Both indexes remain well below the levels seen throughout 2014. Indexes for future manufacturing activity, however, improved markedly in March. The indexes of future production, capacity utilization and growth rate of orders posted double-digit gains from their February readings.

According to the Dallas Fed report, both manufacturing and prices are soft-leaving the Fed in a likely dovish mode. Texas has the second largest manufacturing sector, following California. So far, regional manufacturing surveys point to sluggish manufacturing activity in March.

Market Consensus Before Announcement
The Dallas Fed general business activity index in its Texas manufacturing survey posted a second month of no growth in February. The production index, a key measure of state manufacturing conditions, remained near zero (0.7) and indicated output was essentially unchanged from January levels.

Other measures of current manufacturing activity reflected contraction in February. The new orders index pushed further into negative territory, coming in at minus 12.2, its lowest reading since June 2009. The shipments index fell to minus 3.3, also reaching a low not seen since 2009. The capacity utilization index turned negative as well, dropping from 5.1 to minus 4.9.

Perceptions of broader business conditions remained rather pessimistic this month. The general business activity index moved further negative to minus 11.2, posting its lowest reading in nearly two years. The company outlook index remained slightly negative and edged down from -3.8 to -4.4.

The Dallas Fed conducts this monthly survey of manufacturers in Texas regarding their operations in the state. Participants from across the state represent a variety of industries. In the latter half of the month, the questions for the manufacturing survey are electronically transmitted to respondents and answers are collected over a few days. About 100 manufacturers regularly participate in the Dallas Fed survey, which began collecting data in mid-2004. Participants are asked whether various indicators have increased, decreased or remained unchanged. Answers cover changes over the previous month and expectations for activity six months into the future. The breakeven point for each index is zero with positive numbers indicating growth and negative numbers reflecting decline.

Investors track economic data like the Dallas Fed Manufacturing Survey to understand the economic backdrop for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a moderate growth environment that will not generate inflationary pressures. The Dallas Survey gives a detailed look at Texas' manufacturing sector, how busy it is and where it is headed. Since manufacturing is a major sector of the economy, this report can have a big influence on the markets. Some of the survey indexes also provide insight on inflation pressures -- including prices paid, prices received, wages & benefits, and capacity utilization. The Federal Reserve closely watches this report because when inflation signals are flashing, policymakers can reset the direction of interest rates. As a consequence, the bond market can be highly sensitive to this report. The equity market is also sensitive to this report because it is an early clue on the nation's manufacturing sector, reported in advance of the ISM manufacturing index and often in advance of the NAPM-Chicago index.