US: Dallas Fed Mfg Survey

Mon Jan 29 09:30:00 CST 2018

Consensus Consensus Range Actual Previous
General Activity Index 25.4 22.0 to 29.0 33.4 29.7
Production Index 16.8 32.8

Business remains very brisk for the Dallas Fed's manufacturing sample as the index jumped to 33.4 in January vs what was an already very strong 29.7 in December. The production index, however, did slow but remains solid at 16.8. New orders also slowed but also remain strong at 25.5. Unfilled orders continue to build and delivery times are slowing, both indicative of accelerating conditions. Inflation indications are elevated including traction for selling prices which is a welcome and convincing sign of strength.

This report falls in line with the host of other regional manufacturing reports all of which are showing strength which, however, does contrast with the manufacturing component of the industrial production report which has been flat. Still, last week's durable goods data were strong and do, along with the regional reports, point to a factory sector that is accelerating strongly.

Market Consensus Before Announcement
January's consensus for the Dallas Fed general activity index is 25.4 which would compare with December's very robust 29.7. Unsustainable strength is the risk with this sample as new orders keep pouring in, unfilled orders continue to build, and manufacturers in the region, facing long delivery delays and rising work hours as well as elevated prices, may be having trouble keeping up with demand.

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.