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.

Labor market indicators reflected increased hiring but slightly shorter workweeks. The December employment index was 6.8, up slightly from its November level. Seventeen percent of firms reported hiring new workers compared with 10 percent 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 percent of respondents anticipate further increases in raw materials prices over the next six months, while 44 percent 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.