Manufacturing conditions in Texas continue to show gains, offsetting some concerns about the health of the oil sector, a state economic outlook finds.

The Federal Reserve Bank of Dallas said in a survey of the state manufacturing sector that factory activity increased in December for the third-straight month.

"The production index -- a key measure of state manufacturing conditions -- rose from 5.2 to 13.4, indicating stronger growth in output," the bank said in its report.

Outside of oil and natural gas, Texas produces more than 11 percent of all the manufactured goods in the country, putting it in the No. 2 spot behind California in terms of factory output.

The bank's survey found labor market indicators were following the trend in manufacturing, with indices for employment and hours worked both at, or near, decade highs.

Earlier this month, the federal reserve bank said some parts of the state economy were performing better than the rest of the nation, though wages and employment prospects continued to falter as lower crude oil prices become the new normal. Texas is the No. 1 oil producer in the nation and, as many major energy companies have headquarters in Houston, layoffs show up more on the state's books than elsewhere.

The Railroad Commission of Texas, the state's energy regulator, said total October production was 74.7 million barrels of oil, which represented the third straight month for a drop in output from the state

For the manufacturing sector, the Dallas Federal Reserve found some underlying weakness.

"Perceptions of broader business conditions weakened markedly in December," it said. "The general business activity index remained negative, plunging to -20.1. The company outlook index fell 10 points to -9.7, its lowest level since August."