US: Dallas Fed Mfg Survey

Mon Feb 26 09:30:00 CST 2018

Consensus Consensus Range Actual Previous
General Activity Index 31.0 22.0 to 35.0 37.2 33.4
Production Index 27.9 16.8

The Dallas Fed is clearly surpassing the Philly Fed as the very hottest of the regional and private manufacturing surveys. Dallas' general activity index jumped to 37.2 in February, easily above Econoday's high estimate and the strongest reading of the post-2008 expansion.

Shipments, at 32.1, are also at an expansion high but stress is the building indication from this report as unfilled orders continue to pile up, rising to an unusually strong 11.5 this month. Unfilled orders will continue to build based on incoming orders which are steady and very strong at 25.3. Capacity utilization is up, delivery times continue to slow, and prices look like they may be overheating, especially wages and inputs but also including selling prices where traction is strong and at an expansion high.

Growth in hiring, up in January to 19.1, is still keeping pace but continued demand would raise questions about the region's available labor supply. Respondents in small-sample reports, like this one from Dallas, continue to report far stronger conditions than those tracked in definitive factory data where growth has been uneven and, as yet, moderate.

Market Consensus Before Announcement
February's consensus for the Dallas Fed general activity index is 31.0 which would mark little change from January's extremely robust 33.4. 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 have 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.