The Dallas Fed's manufacturing business conditions index dropped in April to its lowest since May 2020, the pandemic era. The index registered minus 35.8 in April, down from minus 16.3 in March. Price pressures accelerated notably even as business activity dropped. The prices paid index rose to 48.4 from 37.7 while prices received gained to 14.9 from 6.3.

New orders fell to minus 20.0 from minus 0.1. Production was relatively stable at 5.1 versus 6.0, a harbinger of weakness ahead. Employment registered minus 3.9 from minus 4.6. Capex was pretty flat at minus 0.4 versus minus 0.6.

The Dallas Fed report is consistent with the unpleasant results seen in other regional manufacturing surveys, including the Philadelphia Fed, Richmond Fed, Kansas City Fed, and New York Fed, all showing slowing business activity and rising price pressures, presumably in response to tariff effects. Customer demand has pulled back notably amid uncertainty over the business outlook.

The weakness in regional manufacturing will add to expectations for a contractionary sub-50 reading in the ISM manufacturing report due on Thursday. Expectations center on 48.0 for April, down from 49.0 in May and 50.3 in February. If price pressures build in the ISM while demand measures slow, it will feed expectations for a nasty stagflation scenario in 2025.

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.