The Dallas Fed's manufacturing index showed business activity remained in contractionary territory in August after a slightly steeper decline in July. The general activity index registered minus 17.2 in August versus minus 20.0 in July, minus 23.2 in June, and minus 29.1 in May. The August figure compared with the Econoday consensus expectation of minus 21.0.

Price pressures were moderate in August. Prices paid for raw materials rose to 17.4 in August from 10.5 in July, 1.4 in June, and 13.8 in May. Prices received registered 1.8 in August versus 2.3 in July, minus 1.9 in June, and 0.4 in May. Wages and benefits jumped to 34.9 in August from 19.1 in July, 25.3 in June and 25.0 in May.

Other details in the Dallas report included new orders at minus 15.8 in August versus minus 18.1 in July, minus 16.6 in June, and minus 16.1 in May. Production eased to minus 11.2 in August from minus 4.8 in July, minus 4.2 in June, and minus 1.3 in May. Shipments fell to minus 15.8 in August from minus 2.2 in July, minus 17.0 in June, and minus 3.0 in May.

Employment came in at 4.3 in August versus 10.0 in July, 2.2 in June, and 9.6 in May. Hours worked slipped to minus 3.8 in August from (positive) 3.9 in July, minus 4.3 in June, and minus 0.9 in May.

On the six-month outlook, general business conditions slipped to minus 3.3 from 4.6 in July, minus 4.5 in June, and minus 12.7 in May. The six-month outlook for new orders was 3.2 in August versus 19.7 in July, 17.0 in June and 3.7 in May.

The activity index is expected to post a 16th straight negative score, at a steep minus 21.0 in August versus minus 20.0 in July.

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.