US: Dallas Fed Mfg Survey

Mon Apr 27 09:30:00 CDT 2015

Consensus Consensus Range Actual Previous
Bus Activity Index -12.0 -13.0 to -10.0 -16.0 -17.4
Production Index -4.7 -5.2

There have been two key factors holding down US manufacturing this year: weak export demand and weakness in the oil & gas sector. The latter is a special focus of the Dallas Fed manufacturing survey where readings have been severely depressed including today's minus 16.0 reading for business activity and minus 4.7 reading on production.

New orders, arguably the most important reading of all, are at minus 14.0 with the related growth rate at minus 15.5 for its 6th straight negative reading. Companies in the sample are not upbeat about the outlook with this score coming in at a nearly 2-1/2 year low of minus 7.8. The workweek is down and capacity utilization is at a 6-year low of minus 10.4.

Looking at commentary, a few stand out: "Our oil & gas customers have come to a complete stop," "Lower energy prices have adversely impacted our business in the energy sector," and "It is going to be a tough summer."

Yet, despite all the order and production weakness, employment moved from minus 1.8 in March to plus 1.8 in April, which is far from sizzling but is surprisingly in positive ground.

Price readings are in the negative column for a 4th straight month though wages & benefits, perhaps reflecting ongoing hiring needs, is positive and steady at 16.5.

Outside of jobs, though, today's report confirms other early indications of manufacturing trouble this month including those from the New York, Philly, and Richmond Feds along with last week's national PMI flash. And they follow hard indications of earlier trouble from the durable goods and industrial production reports.

Market Consensus Before Announcement
The Dallas Fed general business activity index in its Texas manufacturing survey 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.

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.