The Dallas Fed's manufacturing survey showed the contraction in business activity deepened in May while price pressures persisted. The general activity index for manufacturing registered minus 19.4 in May versus minus 14.5 in April, minus 14.4 in March and minus 11.3 in February. The Econoday consensus forecast for May was minus 14.4.

Details in the Dallas report included new orders at minus 2.2 in May versus minus 5.3 in April, minus 11.8 in March and 5.2 in February. Production came in at minus 2.8 in May versus 4.8 in April, minus 4.1 in March and 1.0 in February. Shipments registered minus 3.0 in May versus 5.0 in April, minus 15.4 in March and 0.1 in February.

Employment came in at minus 5.3 versus minus 0.1 in April, 1.5 in March and 5.9 in February. Wages registered 21.0 in May versus 30.6 in April, 20.4 in March and 20.1 in February.

Prices paid for raw materials were 20.4 in May versus 11.2 in April, 21.1 in March and 15.4 in February. Prices received were 4.1 in May, 5.5 in April, 11.0 in March and 0.8 in February.

On the six-month outlook, general business conditions registered minus 3.3 in May versus 7.9 in April, 1.3 in March and 6.2 in February.

The activity index is expected to extend its long contraction, at a consensus minus 14.4 in May versus minus 14.5 in April.

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.