|General Activity Index||-4.6||-7.0|
Contraction in the Texas manufacturing sector continues to ease, to minus 4.6 in July vs minus 7.0 in June and minus 20.8 May. For the first time this year, new orders actually rose in the month but only slightly, up 0.7. Unfilled orders, however, remain in contraction for an eighth straight month at minus 6.5. Lack of unfilled orders is not good for employment which is in the negative column for a third straight month at minus 3.3.
Among other readings, production, at minus 1.9, is in contraction for a fifth straight month while shipments, at minus 4.3, are in contraction for a sixth straight month. Inventories are up and price readings are mute. In a positive, the company outlook, at plus 1.2, is in the positive column for the first time this year.
Nowhere has the crunch in the energy sector been more evident than in this report. Hopefully, however, the negative effects from the prior plunge in oil prices are, as the Federal Reserve expects, beginning to ease.
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.
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