US: Dallas Fed Mfg Survey

Mon Oct 26 09:30:00 CDT 2015

Consensus Consensus Range Actual Previous
General Activity Index -6.0 -7.0 to -5.0 -12.7 -9.5

Look no farther than to the Dallas Fed manufacturing survey for evidence on how severely low oil prices are affecting the energy sector. Contraction for the general activity index deepened to minus 12.7 in the October report from September's minus 9.5. This is the 10th negative reading in a row. New orders are now negative for a 12th month in a row, at minus 7.6, while unfilled orders are on a similar streak, at minus 3.1. Production is positive for a second straight month, at plus 4.8 in a reading that, however, is very likely to return to the negative column given how low orders are. Hiring is flat with price readings, especially for finished goods, in contraction. This report joins those from Empire State, Philly Fed, and Kansas City which are all pointing to another month of contraction underway for the nation's factory sector.

Market Consensus Before Announcement
The Dallas Fed manufacturing index has been posting deeply negative readings, at minus 9.5 in September with October expected to come in at minus 6.0. One plus for the Dallas report is the Kansas City report which came in at only minus 1 in October. Like Dallas, the Kansas City report has been badly depressed by weakness in the energy sector and the solid bounce in October could mean the worst is over for both.

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.