US: Dallas Fed Manufacturing Index in Shock Oct Slump

Summary:
• The Dallas Fed reports a drop in business activity in the manufacturing sector in the Texas area for the month of October, but US Dollar Index unmoved.

The Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey, otherwise known as the Dallas Fed Manufacturing Index, fell unexpected in October. Data released on Monday showed that the index of general business activity in Texas slumped to -5.1 in October, which was way lower than the September reading of 1.5. It was also lower than the market expectation of 1.4, thus indicating an unexpected contraction in business activity in the region’s manufacturing sector.

Takeaways from the Dallas Fed’s release are as follows:

• Factory activity in Texas continued to expand in October, albeit at a markedly slower pace, according to business executives surveyed.
• Price and wage pressures increased.
• Twenty percent of firms had net hiring, while 9% had net layoffs.
• Labor market measures suggested slower growth in employment and work hours this month. The employment index remained positive but retreated from 18.8 to 11.0, a reading still above average.
• The production index, a key measure of state manufacturing conditions, fell nine points to 4.5, suggesting a moderation in output growth in October.
• Expectations regarding future business conditions were more optimistic in October.

The US Dollar Index was unaffected by the data, and all eyes would now be on the Non-farm Payrolls on Friday. Before then, the FOMC takes centre stage with another rate decision on Wednesday.

The US Dollar Index is trading at the 97.79 handle as at the time of writing after recovering from the lows of 2 weeks ago on improving sentiment around the US-China trade situation. Further improvement in this sentiment should take the asset to the 98.19 resistance initially.

Dampening of sentiment on the USD could force the index downwards where it could retest the October 18 low at 97.16.