Dallas Federal Reserve's Manufacturing Index Hits Lowest Point Since June 2023

The Dallas Fed Manufacturing Index has remained in negative territory since 2022.

Highlights

• In December, the Dallas Fed Manufacturing Index dropped from -10.4 to -27.4 in January.
• The Production Index declined from 1.2 to -15.4.
• The New Orders Index decreased from -10.1 to -12.5.  

On January 29, the Dallas Fed Manufacturing Index report for January was released by the Federal Reserve Bank of Dallas.

The report revealed that the Dallas Fed Manufacturing Index fell from a revised -10.4 (previously reported as -9.3) to -27.4, contrasting with analyst expectations of -23.

The Production Index decreased from 1.2 in December to -15.4 in January, and the New Orders Index dropped from -10.1 to -12.5.

Since 2022, the Dallas Fed Manufacturing Index has consistently remained in negative territory, and it is currently approaching the lows of -30.1 recorded in May 2023.

The Federal Reserve will announce its Interest Rate Decision on Wednesday, with market consensus leaning toward no change in the federal funds rate. According to the FedWatch Tool, there is a 47.7% probability of a 25 bps rate cut by the Fed at the March meeting.

Following the release of the Dallas Fed Manufacturing Index report, the U.S. Dollar Index settled near the 103.80 level. While Treasury yields are declining, forex traders believe the Fed may not be inclined to implement rate cuts in March due to the strength of the U.S. economy. It is expected that the disappointing Dallas Fed Manufacturing Index report will not alter this perspective significantly.

Despite a stronger dollar, gold remains range-bound near the $2025 level, consolidating in the $2015 – $2035 range in recent sessions as traders await the Fed's decision.

The S&P 500 settled close to the 4890 level. Currently, the challenges faced by the manufacturing sector appear to have minimal impact on the S&P 500, as market attention remains focused on AI-related stocks.