The Dallas Federal Reserve’s manufacturing index survey climbed to 3.1 for December.

Consensus was for a reading of 4.0, compared with 1.9 last month.

The employment index was 6.8, up slightly from its November level. Seventeen per cent of firms reported hiring new workers compared with 10 per cent reporting layoffs.

This morning we got an unexpectedly weak Pending Home Sales print front the National Association of Realtors.

Full release:

Texas factory activity increased for the eighth month in a row in December, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell from 16.9 to 7.1, indicating output grew at a slower pace than in November.

Other measures of current manufacturing activity reflected slower or no growth. The new orders index came in near zero, suggesting demand was largely unchanged from November after seven months of increases. The shipments index also fell to around zero, coming in at 0.7, after rising to 14.8 last month. The capacity utilization index declined 8 points to 8.6.

Perceptions of broader business conditions were more optimistic in December. The general business activity index posted its seventh consecutive positive reading and edged up to 3.1. The company outlook index also posted its seventh positive reading in a row and shot up 7.5 points to 15.5, its highest level in nearly two years.

Labour market indicators reflected increased hiring but slightly shorter workweeks. The December employment index was 6.8, up slightly from its November level. Seventeen per cent of firms reported hiring new workers compared with 10 per cent reporting layoffs. The hours worked index dipped to a reading of -2, suggesting a slight decrease in average workweek length.

Upward pressure on prices and wages picked up in December. The raw materials price index rose 10 points to 32.8, with a third of firms noting an increase in input costs. The finished goods price index moved up from 2.2 to 5.9. Compensation costs increased at a faster pace this month, with the wages and benefits index increasing to 21.6, its highest level since July 2012. Looking ahead, 46 per cent of respondents anticipate further increases in raw materials prices over the next six months, while 44 per cent expect higher finished goods prices, the highest share since 2008.

Expectations regarding future business conditions were notably more optimistic in December. The index of future general business activity spiked 16 points to 22.8, reaching its highest reading in nearly three years. The index of future company outlook rose to 24.1, a 21-month high. Indexes for future manufacturing activity also pushed further into 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 Dec. 17 — 24, and 87 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.

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