US: Dallas Fed Mfg Survey

Mon Dec 28 09:30:00 CST 2015

Consensus Consensus Range Actual Previous
General Activity Index -6.0 -8.0 to 2.5 -20.1 -4.9
Production Index 13.4 5.2

Texas factory activity increased for a third month in a row in December. The production index, a key measure of state manufacturing conditions, rose from 5.2 to 13.4, indicating stronger growth in output. Some other indexes of current manufacturing activity also reflected growth in December, but the survey's demand measures showed continued weakness.

New orders, an indicator of incoming demand, declined at a faster pace. The index has been below zero for five months and fell to minus 8.9 in December. The growth rate of orders index has been negative for more than a year and dipped 7 points to minus 14.3 this month. Meanwhile, the capacity utilization and shipments indexes posted their fourth positive readings in a row and inched up to 7.8 and 7.6, respectively.

Perceptions of broader business conditions weakened markedly in December. The general business activity index has been negative throughout 2015 and plunged to minus 20.1 this month. After pushing just above zero last month, the company outlook index fell 10 points in December to minus 9.7, its lowest level since August.

The survey's price measures pushed further negative in December. The raw materials prices index declined to minus 8.6, suggesting a slightly steeper drop in input costs than last month. The finished goods prices index was negative all year and moved down to minus 15.9. Meanwhile, the wages and benefits index moved up to plus 20.4, indicating stronger wage growth.

Expectations regarding future business conditions were mixed in December. The index of future general business activity fell 9 points to minus 1.4, while the index measuring future company outlook fell but remained positive at 6.6. Indexes for future manufacturing activity declined but remained strongly positive.

Market Consensus Before Announcement
The Dallas Fed general activity index has been buried in deep contraction and has been offering, along with the Kansas City Fed report, the starkest evidence of energy-price damage. The Econoday median is calling for a 12th straight month of contraction, and a little deeper contraction at minus 6.0 vs November's minus 4.9. Production in this report has been in the plus column but the outlook for future gains is not supported by growth in new orders which has been in contraction for 13 straight months.

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.