The Dallas Fed's manufacturing survey remains in contraction in May but the rate of decline slowed versus April. The Dallas Fed's general activity index came in at minus 15.3 in May versus minus 35.8 in April. The May result topped the Econoday consensus forecast that looked for a gloomier minus 25.0 for May.

Production improved to 0.9 in May from 5.1 in April. New orders registered minus 8.7 in May versus minus 20.0 in April.

Employment was at 3.5 in May versus minus 3.9 in April. Capex came in at 2.1 in May versus minus 0.4 in April.

Prices paid for raw materials registered 40.7 in May versus 48.4 in April. Pricing power relatively stable with prices received at 15.1 in May versus 14.9 in April.

On the six-month outlook, general business conditions came in at 1.3 in May versus minus 15.3 in April.

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.