Texas factory activity continued to increase in March, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, held steady at 11.1, suggesting growth continued at about the same pace as last month.

Most other measures of current manufacturing conditions also indicated continued expansion in March, although new orders stagnated. The shipments index rose from 4.2 to 8.6, with more than a quarter of manufacturers noting an increase in shipment volumes. Capacity utilization increased further in March; the index edged up from 10 to 12.3. The new orders index meanwhile fell from 5.8 in February to zero this month, suggesting demand stalled.

Perceptions of broader economic conditions remained positive in March. The general business activity index was positive for the third month in a row, although it fell from 17.8 to 10.8. Twenty-three percent of firms noted improvement in the level of business activity, while 12 percent noted a worsening. The company outlook index posted a sixth consecutive positive reading, but it also retreated slightly, falling to 9.5 from 15.8 last month.

Labor market indicators reflected higher labor demand. Strong employment growth continued in March, although the index edged down from 25.2 to 21.7. Twenty-nine percent of firms reported hiring new workers, while 7 percent reported layoffs. The hours worked index continued to suggest average workweeks lengthened.

Input prices and wages continued to increase in March, while selling prices reversed course and declined slightly. The raw materials price index was 27.7, marginally higher than in February. The March wages and benefits index edged up to 21, its highest reading since mid-2008. In contrast, the finished goods price index dropped to -1.3 in March after two months of sharp increases. The lower index was largely due to a marked decline in the share of manufacturers noting price increases. Looking ahead, 57 percent of respondents anticipate further increases in raw materials prices over the next six months, while 35 percent expect higher finished goods prices.

Expectations regarding future business conditions were more optimistic in March. The index of future general business activity has been positive for six months and rose from 15.9 to 19.1 this month. The index of future company outlook came in at 26.2, up slightly from 24.2 in February. Other indexes for future manufacturing activity also increased.