The Dallas Fed's manufacturing index sank a bit further into contraction in July, falling 2.4 points to minus 17.5 which is 4 points below Econoday's consensus. This index has been stuck in uninterrupted and often deep contraction since spring 2022. The production index, slipping from June's plus 0.7 to minus 1.3 in July, extended its up-and-down performance, mostly in a narrow range around zero.

More urgently for the outlook, new orders fell 12 points to minus 12.8 signaling what the report describes as a"pullback in demand" that will have forecasters lowering their estimates for the next Dallas report. The company outlook dropped a full 12 points to minus 18.4 while the outlook uncertainty index shot up to 30.7 for its highest reading since fall 2022 and consistent with the turbulent events unfolding in the presidential election.

However uncertain they feel, respondents were nevertheless hiring this month as employment jumped 10 points to 7.1, a moderate level but the best in 10 months. Price pressures were steady, little changed at 21.2 for wages and benefits and likewise for raw materials at 23.1. Yet lack of pricing power is indicated by an 11 point drop in finished goods prices to 3.4.

The Dallas index rounds out a mostly negative month for the regional Fed surveys: Empire State minus 6.6, Richmond Fed minus 17, Kansas City minus 13, with only the Philadelphia Fed index in positive ground at 13.9. The mix here roughly mirrors the mix in other factory data evident in last week's durable goods report that showed deep contraction at the headline level but a strong bounce back for some components.

The activity index is expected to extend its long contraction, at a consensus minus 13.5 in July versus minus 15.1 in June.

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.