The Dallas Fed's manufacturing survey showed the contraction in business activity continued at about the same pace in September from August, rather reminiscent of the Chicago PMI reported earlier today, which showed similar ongoing deterioration.

The report showed deterioration in new orders, shipments and production, not a good sign. On the slightly positive side, wage cost and input cost increases moderated in September.

The Dallas Fed's general activity index for manufacturing came in at minus 9.0 in September versus minus 9.7 in August and minus 17.5 in July. The Econoday consensus forecast for September was minus 10.0.

Details in the Dallas report included new orders at minus 5.2 in September versus minus 4.2 in August and minus 12.8 in July. Production fell to minus 3.2 in September from 1.6 in August and minus 1.3 in July. Shipments registered minus 7.0 in September versus 0.8 in August and minus 16.3 in July.

Employment came in 2.9 in September versus minus 0.7 in August and 7.1 in July. Wages and benefits were at 18.5 in September versus 22.0 in August and 21.1 in July.

Prices paid for raw materials registered 18.2 in September versus 28.2 in August and 23.1 in July. Prices received were 8.4 in September versus 8.5 in August and 3.4 in July.

On the six-month outlook, general business conditions registered 11.4 in September versus 11.6 in August, 21.6 in July and 12.9 in June.

The Dallas Fed general activity index is expected to edge deeper into contraction to minus 10 after August's minus 9.7.

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.