US: Dallas Fed Mfg Survey

Mon Jun 25 09:30:00 CDT 2018

Consensus Consensus Range Actual Previous
General Activity Index 27.0 22.0 to 33.6 36.5 26.8
Production Index 23.3 35.2

A sharp rise in the general activity index as well as for inflation pressures contrast with slowing in production. The Dallas Fed's general activity index rose nearly 10 points to a 36.5 level for June that tops Econoday's consensus range. But production declined nearly 12 points to 23.3 in what is sharp deceleration but to a still strong rate of growth. Like production, the capacity utilization and shipments indexes both posted double-digit declines though employment growth is holding near May's 6-year high.

A major indication that production may begin to reaccelerate is another increase in new orders which are at 29.6 and the highest level of the year. And strength in orders isn't hurting the company outlook which rose to 33.2 for the highest level in 12 years.

Price data in this report do not point to cooling but to overheating. The raw materials prices index rose 10 points to 53.6, its highest reading since 2011. The finished goods prices index moved up to a 10-year high of 26.2. Compensation costs also accelerated with the wages and benefits index rising seven points to 31.4.

Though production is slowing this month and is a reminder of last week's downward pivots in the Philly Fed and manufacturing PMI, there are still plenty of indications in this sample consistent with very strong, and perhaps unsustainable, rates of growth. Much of this strength is coming from high oil prices which if they continue to climb could make for even greater strength in future Dallas reports.

Market Consensus Before Announcement
Dallas is among the very strongest of the regional reports with new orders and production both at 12-year highs, with capacity utilization elevated and with price readings highly elevated. Another month of unusual strength is expected for June, at a consensus 27.0 and up slightly from May for the general activity index.

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.