US: Dallas Fed Mfg Survey

Mon Sep 25 09:30:00 CDT 2017

Consensus Consensus Range Actual Previous
General Activity Index 12.0 8.0 to 14.3 21.3 17.0
Production Index 19.5 20.3

Hurricane Harvey didn't slow down Texas manufacturing at all based on the Dallas Fed's September report which is led by a strong 4.3 point gain in the general activity index to 21.3 for the best result in 7 months. Readings throughout the report are far above zero to indicate robust month-to-month growth: production 19.5 in September vs 20.3 in August, new orders 18.6 vs 14.3, hours worked 18.4 vs 14.4.

Employment is a special highlight, at 16.3 vs 9.9 to indicate the sharpest rate of hiring in nearly 3-1/2 years. There is an indication of price pressures likely tied to Harvey and its effect on petroleum costs as prices paid rose to 34.9 vs 26.9 for the highest reading since July 2011.

The report includes special questions regarding Harvey and among the results, 41 percent say the hurricane had negative effects on revenue and production though only 6 percent see the impact over the next 6 months as significantly negative while 46 percent see no long term effect. And 69 percent see no effect on future employment.

The economy will be lucky if Hurricane Irma's impact on Florida proves as light as Harvey's hit on Texas, at least based on today's report where responses are voluntary and sample sizes can be as low as 100.

Market Consensus Before Announcement
The Dallas Fed manufacturing report will get close attention as its results will offer a direct assessment of Hurricane Harvey's impact on the state. This report had been very strong going into the hurricane with orders, production, and hiring all showing gains. Econoday's consensus for September's general activity index is 12.0 and down from 17.0 in August.

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.