The Dallas Fed's manufacturing survey showed the contraction in current business activity eased in October with production rebounding into positive territory and notable improvement in the six-month outlook. Current employment continued to contract, however.

The Dallas Fed's general activity index for current conditions rose to minus 3.0 in October from minus 9.0 in September, minus 9.7 in August and minus 17.5 in July. The Econoday consensus forecast for October was minus 9.0.

Details in the Dallas report included new orders at minus 3.7 in October versus minus 5.2 in September, minus 4.2 in August and minus 12.8 in July. Production jumped to 14.6 in October from minus 3.2 in September, 1.6 in August and minus 1.3 in July. Shipments registered 1.5 in October versus minus 7.0 in September, 0.8 in August and minus 16.3 in July.

Employment came in minus 5.1 versus 2.9 in September, minus 0.7 in August and 7.1 in July. Wages and benefits were at 23.5 in October versus 18.5 in September, 22.0 in August and 21.1 in July.

Prices paid for raw materials registered 16.3 in October versus 18.2 in September, 28.2 in August and 23.1 in July. Prices received were 7.4 in October versus 8.4 in September, 8.5 in August and 3.4 in July.

On the six-month outlook, general business conditions registered 29.6 in October versus 11.4 in September, 11.6 in August, 21.6 in July and 12.9 in June.

Regional Federal Reserve bank manufacturing indicators have shown contraction continues around the country and the Dallas district is no exception. Forecasters expect another minus 9.0 index in October, unchanged from minus 9.0 in September.

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.