|General Activity Index||-13.6||-31.8|
Weakness eased in the Dallas Fed's manufacturing sector this month, in what is the latest positive signal for March. The general activity index jumped 18 points though is still deeply in the negative column, at minus 13.6 for the 15th straight month of contraction. But positives are expansion in production, at plus 3.3 to end two prior months of contraction, and also a gain for capacity utilization, also at plus 3.3. But order readings are in contraction though less so than prior months. Readings on employment, however, showed no improvement and remain in the negative column. Input prices show no change with selling prices still contracting. Wage pressures, however, remain firm. One special positive in the report is a gain for the outlook, at 6.1 for the first positive reading in four months. The Empire State, Philly Fed, and Richmond Fed reports are all showing strength this month, joined now by the hard-hit Dallas Fed, indications that point to a bounce-back from what was a very soft month of February for the factory 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.