US: Dallas Fed Mfg Survey

Mon Jun 29 09:30:00 CDT 2015

Consensus Consensus Range Actual Previous
General Activity Index -13.5 -16.0 to -11.0 -7.0 -20.8
Production Index -6.5 -13.5

The Texas manufacturing sector is still falling but not falling as fast as prior months. The general activity index improved but to a still very weak minus 7.0 from a deeply negative minus 20.8 percent in May. The production index improved to minus 6.5 from minus 13.5 percent in the May report.

New orders, however, remain very weak, still in the double-digit negative column at minus 10.3. Shipments are in the high single-digit negative column at minus 8.8. Nearing the plus column, however, is employment, at minus 1.2 vs May's minus 8.2. Price data show upward pressure for inputs, moderating downward pressure for finished goods, and steady upward pressure for wages.

This is the last of the regional manufacturing surveys from the Fed and the bulk, with the exception of the Philly Fed, pointing to another month of weakness for the sector which continues to get hit with a one-two punch: weakness in exports and also, as especially evidenced in this report, weakness in energy equipment.

Market Consensus Before Announcement
The Dallas Fed manufacturing survey has been signaling perhaps the weakest conditions of any report on the calendar, the result of the plunge in oil prices and major downturn for the energy sector.

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.