The Dallas Fed's manufacturing survey showed the contraction in business activity continued in August with the general business activity index at minus 9.7 in August versus minus 17.5 in July and minus 15.1 in June. The Econoday consensus forecast for August was minus 16.0.

Details in the Dallas report included new orders at minus 4.2 versus minus 12.8 in July and minus 1.3 in June. Production was at 1.6 in August versus minus 1.3 in July and 0.7 in June. Shipments registered 0.8 in August versus minus 16.3 in July and 2.8 in June.

Employment came in at minus 0.7 in August versus 7.1 in July and minus 2.9 in June. Wages remained somewhat elevated at 22.0 in August versus 21.1 in July and 24.3 in June.

Prices paid for raw materials registered 28.2 in August versus 23.1 in July and 21.5 in June. Prices received were 8.5 in August versus 3.4 in July and 14.4 in June.

On the six-month outlook, general business conditions registered 11.6 in August versus 21.6 in July and 12.9 in June.

The Dallas Fed manufacturing index that tracks factory activity in Texas is expected to tick up to minus 16.0 in August after retreating to minus 17.5 in July from an upwardly revised minus 13.5 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.