Texas factory activity, as measured by the production index, "increased sharply in May," according to the monthly business activity survey conducted by the Federal Reserve Bank of Dallas, released Tuesday.

The general business activity index narrowed to negative 10.5 in May from negative 15.6 in April.

The production index surged to positive 11.2 from negative 0.5.

Capacity use gained to 6.4 from 2.7, the Fed reported. Volume of new orders reversed to positive 6.2 from negative 4.9, while growth rate of orders index narrowed to negative 4.3 from negative 12.0.

Unfilled orders widened to negative 8.3 from negative 7.9 in the prior survey, while the volume of shipments increased to positive 3.1 from negative 0.4, and delivery times jumped to positive 3.3 from negative 6.4. The materials inventory index reversed to negative 7.3 from positive 7.7, the finished goods inventory decreased to zero from 2.1. Prices paid for raw materials rose to 6.4 from 2.5, while prices received for finished goods sank to negative 8.3 from negative 3.0. Wages and benefits slipped to 14.0 from 17.7, while the employment index reversed to negative 6.3 from positive 6.3, and the hours worked index narrowed to negative 2.3 from negative 6.5, and the capital expenditures index slipped to 2.2 from 4.2.

As for future outlook (six months from now), the general business conditions index improved to negative 2.6 from negative 6.7 last month, the production index increased to 34.6 from 32.8, while capacity use fell to 27.9 from 29.0, the Fed reported. Volume of new orders slid to 26.9 from 32.4, while growth rate of orders index dipped to 18.6 from 18.8.

Unfilled orders slipped to zero from 6.8, while the volume of shipments gained to 30.1 from 29.0, and delivery times widened to negative 5.4 from negative 2.8. Materials inventories remained at 2.2, and the finished goods inventory also held at 2.2.

Prices paid for raw materials fell to 27.8 from 31.1, while prices received for finished goods slid to 11.1 from 13.4. Wages and benefits dropped to 31.9 from 38.2, the employment index fell to 14.5 from 22.2, while the hours worked index widened to negative 3.3 from negative 3.1, and the capital expenditures index grew to 14.8 from 13.4.

The Texas Manufacturing Outlook Survey is a monthly anecdotal survey of manufacturers in Texas. Roughly 80 manufacturers regularly participate in the Dallas Fed survey, which began collecting data in May 2004.

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