US: Dallas Fed Mfg Survey

Tue May 29 09:30:00 CDT 2018

Consensus Consensus Range Actual Previous
General Activity Index 23.2 20.0 to 27.0 26.8 21.8
Production Index 35.2 25.3

Regional indications point to a very strong month of May including the Dallas Fed's general activity index which jumped 5 points to 26.8 to beat Econoday's consensus by 3.6 points. Production, up 10 points to 35.2, is at a 12-year high as is capacity utilization which surged 13.5 points to 32.2. And strength in orders points to greater utilization ahead with the growth rate of new orders up 8 points to 26.5 for yet another 12-year high. Employment is up 6 points to 23.4 which is a 6-year high.

With all this strength it's no surprise that price and wage pressures remain "highly elevated" as the report says, underscored by a rise for finished prices where a quarter of the sample, which numbers roughly 100 in any one month, reporting gains in the month.

How long can these rates of growth go on before business expansion -- because of lack of capacity especially for employment -- begins to slow is the question especially for this sample.

Market Consensus Before Announcement
Regional factory surveys have been strong so far in May and another month of exceptional growth is the call for the Dallas Fed's report. Forecasters see the general activity index firming slightly to a consensus 23.2 vs 21.8 in April. Orders have been very strong in this sample accompanied, however, by signs of capacity stress including rising utilization and a multi-year high for input costs.

The Dallas Fed Manufacturing Survey tracks factory activity in Texas on a monthly basis. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month. Responses are aggregated into balance indexes where positive values generally indicate growth while negative values generally indicate contraction. About 100 manufacturers regularly participate in the survey.

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.