The Dallas Fed's manufacturing survey shows activity flattened out in July after five months of sequential contraction. The Dallas Fed's general activity index comes in at 0.9 in July versus minus 12.7 in June, minus 15.3 in May, and a nasty minus 35.8 in April at the height of tariff worry. The July figure topped expectations for another contraction at minus 9.0.

Production is up to 21.3 in July from 1.3 in June, 0.9 in May and 5.1 in April. New orders register minus 3.6 in July versus minus 7.3 in June, minus 8.7 in May and minus 20.0 in April.

Employment is at 8.4 in July versus 5.7 in June, 3.5 in May, and minus 3.9 in April. Capex comes 6.8 in July versus 10.9 in June, 2.1 in May, and minus 0.4 in April.

Prices paid for raw materials registers 41.7 in July, 43.0 in June, 40.7 in May, and 48.4 in April. Prices received index is at 11.1 in July, 26.1 in June, 15.1 in May, and 14.9 in April.

On the six-month outlook, general business conditions are at 19.0 in July, 14.4 in June, 1.3 in May, minus 15.3 in April.

In response to a special question, survey respondents said US immigration policy is making it harder to recruit and retain workers. Here is what the Dallas Fed says in summary:

Executives report that changes to immigration policy have impacted some firms' ability to hire and retain foreign-born workers. Thirteen percent of Texas firms surveyed say they've experienced an impact, and an additional 7 percent expect an impact this year. Top impacts include an inability to hire qualified workers because they lack work permits or legal status, a reduction in the number of foreign-born applicants, and employees missing work due to fear of immigration enforcement. Increasing hours worked for existing employees and increasing wages and/or benefits are the top actions taken by firms in response.

The consensus looks for the activity index at minus 9.0 in July versus minus 12.7 in June, which would suggest ongoing contraction.

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.