The Dallas Fed's manufacturing survey showed business activity remained in contraction territory with the general activity index at minus 9.3 in December versus minus 19.9 in November and minus 19.2 in October. The latest figure compared with the Econoday consensus expectation of minus 20.5.

Details in the Dallas report included new orders at minus 10.9 versus minus 20.5 in November and minus 8.8 in October. Production came in at 1.4 versus minus 7.2 in November and 5.2 in October. Shipments registered minus 5.3 versus minus 9.5 in November and minus 1.4 in October.

Employment came in at minus 1.6 in December versus 5.0 in November and 6.7 in October. Hours worked registered 0.3 in December versus minus 5.5 in November and minus 2.3 in October.

Prices paid for raw materials were 17.8 in December versus 12.6 in November and 13.6 in October. Prices received registered 6.8 in December versus minus 6.2 in November and minus 2.1 in October.

On the six-month outlook, general business conditions registered minus 8.7 in December versus minus 13.4 in November and minus 6.8 in October. The six-month outlook for new orders was 13.6 in December versus 8.4 in November and 12.4 in October.

The activity index is expected to extend its long contraction, at a consensus minus 20.5 in December versus minus 19.9 in November.

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.