US: Dallas Fed Mfg Survey

Mon Apr 25 09:30:00 CDT 2016

Consensus Consensus Range Actual Previous
General Activity Index -9.0 -11.4 to -8.0 -13.9 -13.6
Production Index 5.8 3.3

The decent of the Dallas Fed report may be flattening out, hopefully. The production index posted its second straight positive reading, at 5.8 in April vs 3.3 in March, but the really good news is new orders which popped into the plus column, to 6.2 following four straight declines. Capacity utilization is another plus, up for a second month.

Still, the overall assessment is negative, at minus 13.9 for the general activity index which is a 16th straight negative score, a run that can be traced back directly to the collapse in oil prices. Employment remains weak, at minus 3.7 for a fourth straight contraction. Price data do show some life with wages up and raw materials, which had been week, also up. Selling prices, however, remain a big negative, at minus 6.6 for what is also a 16th straight month in the wrong column.

The ongoing recovery for oil is having a positive effect on energy prices and is likely to have a wider positive effect for the Texas manufacturing area. And perhaps this report, though still mostly weak, is a turning point.

Market Consensus Before Announcement
The Dallas Fed general activity index showed some life in March and a little more is expected for April where the consensus is at minus 9.0. Stuck in contraction for 15 straights, the index did improve by 18 points in March to minus 13.6, a still deeply negative reading for a region getting mauled by the weakness in energy prices.

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.