Texas Business reports: Texas factory activity increased in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 6.4 to 10, suggesting stronger output growth.

Other measures of current manufacturing activity also indicated growth in September. The new orders index rose to 5.3 following a reading of zero last month, suggesting a pickup in demand. The capacity utilization index advanced from 1.7 to 9.3, largely due to fewer manufacturers noting a decrease. The shipments index rose to 4.5, bouncing back into positive territory after falling to -2.3 in August.

Indexes reflecting broader business conditions were mixed. The general business activity index remained slightly negative but edged up from -1.6 to -0.9. The company outlook index was positive for the fifth month in a row but fell slightly to 2.4 from a reading of 4.1 in August.

Labor market indicators reflected slower labor demand growth and slightly longer workweeks. The employment index remained positive but fell to 5.9, its lowest reading in more than a year. Sixteen percent of firms reported hiring new workers, while 10 percent reported layoffs. The hours worked index moved up from -0.9 to 2.8.

Price pressures were mixed in September. The raw materials price index jumped nearly 12 points to 22.5, indicating a sharp rise in input costs. The finished goods price index held steady at -1.3, continuing to suggest a slight decline in selling prices. The wages and benefits index edged up from 13.5 to 15.4, although the majority of manufacturers continued to note no change in compensation costs. Looking ahead, 52 percent of respondents anticipate further increases in raw materials prices over the next six months, while 30 percent expect higher finished goods prices.

Expectations regarding future business conditions were more optimistic in September. The index of future general business activity rose sharply from -5.1 to 5.5, registering its first positive reading in three months. The index of future company outlook increased slightly, coming in at 9.2. Indexes for future manufacturing activity moved down slightly from their August levels, but all remained in strong positive territory.

The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity. Data were collected Sept. 11-19, and 97 Texas manufacturers responded to the survey. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month.

Survey responses are used to calculate an index for each indicator. Each index is calculated by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase. When the share of firms reporting an increase exceeds the share reporting a decrease, the index will be greater than zero, suggesting the indicator has increased over the prior month. If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, suggesting the indicator has decreased over the prior month. An index will be zero when the number of firms reporting an increase is equal to the number of firms reporting a decrease. Data have been seasonally adjusted as necessary.