The following is the text of the Texas manufacturing activity from the Federal Reserve Bank of Dallas.

The Federal Reserve Bank of Dallas will release the Texas Service Sector Outlook Survey (TSSOS) on June 1 at 9:30 a.m. CDT. TSSOS is analogous to the Texas Manufacturing Outlook Survey (TMOS) but covers the private service-producing sector of the Texas economy. The TSSOS data go back to January 2007 and include a breakout of respondents from the retail and wholesale sectors, called the Texas Retail Outlook Survey (TROS). TSSOS will come out monthly on the day following the TMOS release.

Texas factory activity increased in May, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 8 to 13 with 27 percent of respondents noting output increased from April.

Other measures of current manufacturing conditions also indicated growing activity, although the pace of new orders slowed. The capacity utilization index edged up from its April level, while the shipments index held steady at a reading of 8. The new orders index moved down from 4 to 1, with the share of manufacturers reporting increased order volumes falling from 30 percent to 22 percent. The growth rate of orders index turned negative after six months of positive readings. For all indicators, there was a significant rise in the percentage of firms noting no change from the prior month.

Perceptions of general business conditions were mixed in May. The general business activity index declined from 11 to -7, its first negative reading in eight months. However, more than three-fourths of respondents said activity was unchanged from April. The company outlook index fell from 10 to 3, with 16 percent of respondents saying their outlooks were improved from the prior month compared with 13 percent saying their outlooks had worsened.

Labor market indicators reflected more hiring and longer workweeks. The employment index came in at 12, with the share of manufacturers adding workers reaching its highest level this year. The hours worked index jumped up from -1 in April to 13 in May.

Prices climbed again this month, although at a reduced rate, and labor costs continued an upward trend. The raw materials price index retreated from 57 to 43, suggesting input prices rose but at a slower pace than in April. The finished goods price index fell from 24 to 9, its lowest level this year. About 60 percent of respondents anticipate further increases in raw materials prices over the next six months, while 32 percent expect higher finished goods prices. The wages and benefits index rose from 16 to 19, although the great majority of respondents noted no change in labor costs.

Expectations regarding future business conditions were less optimistic in May. The future general business activity index was 8, its lowest reading since September 2010, and the future company outlook index also fell to an 8-month low. Future indexes of manufacturing conditions also fell in May, but remained in solid 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 May 17-25, and 93 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.

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