The latest survey from the Texas Manufacturing Outlook has revealed that factory activity in Texas continued to grow at a modest pace in October. The production index, a key measure of manufacturing conditions in the state, posted a second positive reading after four months in negative territory. However, other indicators showed mixed signals, suggesting ongoing uncertainty in the economic landscape.

The production index, which measures output expansion, decreased slightly to 5.2 in October. While this still signifies a modest pace of growth, it indicates a slight slowdown compared to previous months. The new orders index remained negative, slipping four points to -8.8, raising concerns about the demand for Texas manufactured products.

Despite the positive growth in production, perceptions of broader business conditions in Texas continued to worsen. The general business activity and company outlook indexes remained largely unchanged at -19.2 and -17.1, respectively, marking eighteen consecutive months in negative territory. However, there was a slight improvement in the outlook uncertainty index, which decreased from 27.0 to 20.2.

Labor market measures also displayed signs of weakening in October. The employment index declined by seven points to 6.7, just below the series average. While 19 percent of firms reported net hiring, 13 percent noted net layoffs. Additionally, the hours worked index slipped into negative territory at -2.3, indicating shorter workweeks for employees in the manufacturing sector.

There was some relief for Texas manufacturers in terms of input costs, as upward pressure on labor and material costs retreated. The raw materials prices index dropped significantly by 11 points to 13.6, while the finished goods prices index fell to -2.1, its lowest reading in over three years. The wages and benefits index also decreased by 10 points to 24.4, moving closer to the average seen over the past three years.

Looking ahead, expectations for future manufacturing activity in Texas were mixed. The future production index rose by nine points to 20.0, indicating a positive outlook for output expansion. However, the future general business activity index remained negative at -6.8, despite a 10-point increase. Other indicators of future manufacturing activity showed improvement, suggesting cautious optimism among Texas manufacturers.

The survey, conducted from October 17 to 25, gathered responses from 94 Texas manufacturers. The Dallas Fed uses the Texas Manufacturing Outlook Survey to provide a timely assessment of the state's factory activity. By gauging changes in output, employment, orders, and prices, the survey offers valuable insights into the overall health of the manufacturing sector.

While Texas manufacturing has shown modest growth in October, the mixed signals and lingering economic concerns highlight the need for continued caution. As uncertainty persists, businesses in the state will likely navigate through ongoing challenges to ensure sustained growth and recovery in the coming months.