By Xavier Fontdegloria

Factory activity in Texas quickened its expansion pace in September to a two-year high, data from the Federal Reserve Bank of Dallas showed Monday.

The production index of the Texas Manufacturing Outlook Survey, a key measure of state manufacturing conditions, came in at 22.3 in September, up from 13.1 in August and indicative of a solid expansion of output.

In the survey, researchers at the Federal Reserve in Dallas ask Texas executives about a range of conditions in the industrial sector. They are asked whether certain parameters such as output, employment or orders increased, decreased or remained unchanged over the previous month.

"Texas factory activity expanded in September for the fourth month in a row following a record contraction due to the Covid-19 pandemic," the Dallas Fed said.

The index for general business activity for August also increased, to 13.6 from 8.0 the previous month, signaling that overall activity is expanding at a greater pace. Economists polled by The Wall Street Journal had expected the reading to be unchanged at 8.0.

The new orders index advanced roughly five points to 14.7, while the growth rate of orders index increased slightly to 13.2.

The capacity utilization index rose from to 17.5 from 10.9 the prior month, and the shipments index decreased to 21.5 from August's 23.3.

Labor market measures indicated stronger employment growth and a continued increase in workweek length, the Dallas Fed said. The employment index pushed up from 10.6 to 14.5, suggesting more robust hiring, with 24% of firms noting net hiring and 9.5% noting net layoffs.

Expectations regarding future business conditions were more positive than in August, the Federal Reserve Bank of Dallas said.

The future company outlook index increased to 32.5 in September from August's 27.8, while the future general business activity index ticked up to 28.0 from the 20.4 level registered the prior month.

"We have seen slight improvements that we hope are not temporary," said one of respondents from the paper manufacturing business.

"We are busier than ever and will end with a record year," said another one from the machinery manufacturing sector.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

(END) Dow Jones Newswires

September 28, 2020 11:11 ET (15:11 GMT)