US: Dallas Fed Mfg Survey

Mon Mar 26 09:30:00 CDT 2018

Consensus Consensus Range Actual Previous
General Activity Index 30.9 26.0 to 38.5 21.4 37.2
Production Index 12.7 27.9

Three months of building surge eased this month for the Dallas Fed manufacturing report. The general activity index slowed 15 points to 21.4 which is under the low estimate but still an extremely favorable reading, and an arguably more favorable reading given that prior strength was pointing to unwanted capacity stress.

Production fell more than 15 points to 12.7 with new orders down 17 points to 8.3 and employment down 8 points to 10.8. Capacity utilization fell 10 points to 9.6 with hours worked and also wages and selling prices both cooling. Input costs, however, ticked higher to a 7-year high which is a reminder that demand in this sample is unquestionably robust.

Outlook measures for Dallas manufacturers also eased but remain very strong, which is the takeaway from today's report. Watch tomorrow for a March update from the Richmond Fed where Econoday's consensus is also calling for slowing growth.

Market Consensus Before Announcement
Forecasters are looking for a little cooling in the Dallas Fed's general activity index, to 30.9 in March vs February's outsized 37.2. The result in February lifted Dallas over Philly as the very strongest of the regional manufacturing samples and hints of overheating were evident, including increases in unfilled orders, capacity utilization, and wages.

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.