US: Dallas Fed Mfg Survey

Tue Dec 26 09:30:00 CST 2017

Consensus Consensus Range Actual Previous
General Activity Index 20.0 18.0 to 22.0 29.7 19.4

Regional factory reports, in some contrast to government data at the national level, continue to run at unusually strong rates of growth including the Dallas Fed's general activity index which is up more than 10 points in December's data to a much stronger-than-expected 29.7.

New orders keep pouring in, also up more than 10 points to 30.1, and unfilled orders continue to build, at 9.2 which is strong for this reading, as manufacturers in the region struggle to keep up with demand. Hints of constraints include long delivery delays, elevated prices for inputs and traction for finished prices, a sharp rise in hours worked and also wages & benefits, and a jump in employment which is up nearly 15 points to 20.4. Manufacturers in the region are increasing capital spending as capacity utilization continues to climb.

Yet the strength of the Dallas Fed, along with similar reports, has not panned out to quite the same strength for factory orders, which have been solid but still mixed, nor the manufacturing component of the industrial production report which also has been mixed. Still, the factory sector is on the rise and looks to be an important contributor to fourth-quarter growth.

Market Consensus Before Announcement
Readings on costs and production cooled to more sustainable levels in the November manufacturing report from the Dallas Fed though new orders remained very strong in what points to continued strains on capacity. Econoday's consensus for the general activity index in December is 20.0 vs November's 19.4.

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.