The Dallas Fed's manufacturing index showed business activity contracted more than expected in April. The general activity index fell to minus 23.4 in April from minus 15.7 in March and minus 13.5 in February, the twelfth straight negative result for the index. The April figure compared with the Econoday consensus expectation of minus 11.5.

Details in the Dallas report included new orders at minus 9.6 in April versus minus 14.3 in March and minus 4.0 in February. Production stayed barely positive at 0.9 in April from 2.5 in March and minus 2.8 in February. Shipments were at minus 2.8 in April compared with minus 10.5 in March and minus 5.0 in February.

Employment came in at 8.0 in April versus 10.4 in March and minus 1.0 in February. Hours worked declined to minus 2.7 from 2.6 in March and 4.9 in February. Prices paid for raw materials were at 19.5 in April versus 20.3 in March and 25.1 in February. Prices received registered 8.4 versus 7.0 in March and 15.8 in February.

On the six-month outlook, general business conditions declined to minus 16.6 in April from minus 11.2 in March, and minus 2.9 in February. The six-month outlook for new orders was 7.7 in April versus 6.0 in March and 10.2 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.