The Dallas Fed's manufacturing index showed the contraction in business activity deepened in October from September. The general activity index dipped to minus 19.2 in October from minus 18.1 in September, minus 17.2 in August and minus 20.0 in July.

Price pressures eased. Prices paid for raw materials declined to 13.6 in October from 25.0 in September, 17.4 in August and 10.5 in July. Prices received declined to minus 2.1 October from were 1.8 in September, 1.8 in August and 2.3 in July. Wages and benefits came in at 24.4 in October versus 34.8 in September, 34.9 in August and 19.1 in July.

Other details in the Dallas report included new orders at minus 8.8 versus minus 5.2 in September, minus 15.8 in August and minus 18.1 in July. Production registered 5.2 in October versus 7.9 in September, minus 11.2 in August, and minus 4.8 in July. Shipments came in at minus 1.4 in October versus minus 1.1 in September, minus 15.8 in August and minus 2.2 in July.

Employment came in at 6.7 in October versus 13.6 in September, 4.3 in August and versus 10.0 in July. Hours worked registered minus 2.3 in October versus 5.1 in September, minus 3.8 in August and 3.9 in July.

On the six-month outlook, general business conditions came in at minus 6.8 versus minus 16.5 in September, minus 3.3 in August, and 4.6 in July The six-month outlook for new orders was 12.4 in October versus 10.1 in September, 3.2 in August and 19.7 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.