The Dallas Fed's manufacturing index showed business activity remained in contractionary territory in September although current production and employment rebounded. The general activity index registered minus 18.1 in September, nearly unchanged from minus 17.2 in August and minus 20.0 in July. The latest September figure compared with the Econoday consensus expectation of minus 12.0.

Price pressures were mixed. Prices paid for raw materials rose to 25.0 in September from 17.4 in August and 10.5 in July. Prices received were flat at 1.8 in September from 1.8 in August and versus 2.3 in July. Wages and benefits were nearly unchanged at 34.8 in September from 34.9 in August and versus 19.1 in July.

Other details in the Dallas report included new orders at minus 5.2 from minus 15.8 in August and minus 18.1 in July. Production jumped to 7.9 from minus 11.2 in August and from minus 4.8 in July. Shipments improved to minus 1.1 in September from minus 15.8 in August and versus minus 2.2 in July.

Employment came in better at 13.6 in September versus 4.3 in August and versus 10.0 in July. Hours worked rose to 5.1 in September from minus 3.8 in August and 3.9 in July.

On the six-month outlook, general business conditions slipped to minus 16.5 from minus 3.3 and from 4.6 in July The six-month outlook for new orders was 10.1 in September versus 3.2 in August and 19.7 in July.

The activity index is expected to post a 17th straight negative score, at minus 12.0 in September versus minus 17.2 in August.

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.