DALLAS-Texas factory activity showed the first signs of bottoming out in September, according to a report released by the Federal Reserve Bank of Dallas. The production index, a key indicator of current manufacturing activity, came in close to zero as the number of companies seeing increases and decreases was nearly equal.

Most indexes of current activity improved, continuing a trend that began in spring. The shipments index turned positive for the first time in 14 months. The new orders index also moved into positive territory, indicating that manufacturers are seeing growing demand. Indexes for capacity utilization and growth rate of orders improved but remained slightly negative.

The business activity and company outlook indexes also saw further improvement in September, largely because fewer companies are seeing deteriorating conditions. Both remain negative, however.

Employment indicators suggest manufacturers are still trimming payrolls, but the key indexes are becoming less negative. The average workweek index rose for the second consecutive month, and about 17% of manufacturers noted increases in work hours. The employment index also improved as the share of firms reporting job cuts fell, while those reporting new hires rose from last month. Wage pressures remained minimal, with 92% of producers noting no change in compensation.

Price pressures were mixed again this month. The finished goods prices index remained negative as producers receiving lower prices for their products continued to outstrip those receiving higher prices. In contrast, the raw materials prices index was positive for the second consecutive month, indicating that producers are experiencing rising input prices.

Manufacturers continue to expect demand to improve in coming months. The six-month company outlook was positive in September, as it has been since June. The future general business activity index was positive for the second consecutive month.

Several other indexes of future activity also strengthened in September. The future production, new orders and shipments indexes rose, and half of the respondents said they expected further increases in new orders six months from now. The future employment index turned positive, signaling that manufacturers intend to expand their payrolls in coming months.

The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity. Data were collected September 15 to 23, and 95 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.

For more information, visithttp://dallasfed.org/index.cfm.