US: Dallas Fed Mfg Survey

Mon Oct 30 09:30:00 CDT 2017

Consensus Consensus Range Actual Previous
General Activity Index 21.3 16.7 to 22.0 27.6 21.3

The Dallas manufacturing report never did show any ill effects from Hurricane Harvey and now readings are accelerating during October. The general activity index jumped 6.3 points from an already very strong September to 27.6 in October. Production is up 6 points to 25.6 and manufacturers in the sample are producing at full throttle with capacity utilization, at 22.5, hitting a decade high.

New orders are up 6 points to 24.8 with the company outlook steady at a very strong 25.8. Employment is steady and solid at 16.7 with, in an unusual positive, less than 5 percent of the sample reporting monthly layoffs.

High employment is a recipe for wage gains which are at a strong 22.5. Input price pressures continue to go up with pass through to selling prices limited but tangible.

This report falls in line with other regional surveys that are pointing, with heightened emphasis, to a strong upturn underway in the factory sector. Watch for factory payrolls in October's employment report followed by factory orders for September, both on Friday.

Market Consensus Before Announcement
Hurricane Harvey had no effect on the Dallas Fed general activity index in September which surged instead of sank. Readings are robust with employment at a multi-year high. Econoday's consensus for October's general activity index is for a second straight 21.3.

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.