The Dallas Fed's manufacturing index showed accelerating contraction in March. The general activity index fell to minus 15.7 in March from minus 13.5 in February and minus 8.4 in January, the eleventh straight negative result for this index. The March figure missed expectations for minus 11.0.

Details in the Dallas report included new orders down to minus 14.3 in March from minus 4.0 in February. Production improved slightly to 2.5 from minus 2.8 in February. Interestingly, current shipments dropped to minus 10.5 in March from minus 5.0 in February.

Employment improved to 10.4 in March from minus 1.0 in February. Hours worked were 2.6 in March versus 4.9 in February. Prices paid for raw materials declined to 20.3 in March from 25.1 in February. Prices received registered 7.0 versus 15.8 in February.

On the six-month outlook, general business conditions were minus 11.2 in March, down from minus 2.9 in February. The six-month outlook for new orders was 6.0 versus 10.2 in February.

The activity index is expected to post an eleventh straight negative reading, at a consensus minus 11.0 in March versus minus 13.5 in February.

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.