Today's durable goods orders showed a strong gain for ex-transportation equipment, but you would never have guessed it based on the long run of dismal showings for the Fed's regional manufacturing reports. Dallas is the latest, sinking more than 5 points deeper into contraction this month to minus 13.5 and outside Econoday's consensus range. This is the tenth straight negative showing and is nearly matched by similar runs for Empire State, Philadelphia, Richmond and Kansas City as well.

Dallas production had popped into the plus column in January but barely at 0.2; now it's at minus 2.8. New orders are down more than 9 points to minus 13.2; unfilled orders fell sharply to minus 13.3; shipments are at minus 4 and even employment is contracting at minus 1.0.

Wages and benefits are rising, up more than 2 points to 32.7 with input costs up 4.6 points to 25.1 and selling prices up nearly 6 points at 15.8. Stubbornly high inflation along with high interest rates are generally negatives for business sentiment, and the company outlook in this report is down more than 15 points this month to minus 17.5.

Diffusion indexes (throw the ISM in here as well) are all signaling contraction for US manufacturing, a sector traditionally considered to signal directional shifts in overall economic activity -- that right now would be recession!

The activity index is expected to post a tenth straight negative reading, at a consensus minus 9.0 in February versus minus 8.4 in January.

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.