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By: Phil Sneed

TANDEM LOGISTICS NEWS FEED (11/13/2011): Texas factory activity increased in October, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained positive but edged down from 5.9 to 4.1, suggesting growth slowed slightly.

Other measures of current manufacturing conditions also indicated growth in October, and the pace of new orders increased. The shipments index fell from 9.4 to 2.7, suggesting shipment volumes continued to increase but at a slower pace. The capacity utilization index moved back into positive territory after being negative for two months. The new orders index suggested a pickup in demand, moving from 3.6 to 8.3. Nearly 30 percent of manufacturers noted increased order volumes in October, compared with about 20 percent noting a decrease.

Perceptions of general business conditions improved in October. The general business activity index jumped up from -14.4 to 2.3, its first positive reading in six months. The company outlook index also rose markedly, bouncing back to a reading of 7.2 after coming in near zero in September.

Labor market indicators reflected higher labor demand growth. The employment index came in at 15.1, up slightly from 13.4 in September. Twenty-one percent of manufacturers reported hiring new workers, while 6 percent reported layoffs. This share of layoffs represents the lowest figure since 2006. The hours worked index continued to suggest average workweeks lengthened.

Upward pressure on input prices and wages abated in October, and selling prices were unchanged from September levels. The raw materials price index fell to 19.1, its lowest reading since mid-2010. The finished goods price index came in near zero after a reading of 3.9 last month. Forty-four percent of respondents anticipate further increases in raw materials prices over the next six months, while 27 percent expect higher finished goods prices. The wages and benefits index fell from 17.4 in September to 8.9 in October, although the great majority of respondents continued to note no change in labor costs.

Expectations regarding future business conditions were notably more optimistic in October. The index of future general business activity advanced to 14.7 after dipping into negative territory in September. The index of future company outlook jumped up as well, rising from 11.8 to 25.3. Most indexes of future manufacturing activity also increased considerably in October, reaching their highest levels since spring.

The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity. Data were collected Oct.18–26, and 90 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.

Source: Federal Reserve Bank of Dallas, Nov 2011