Good News From Philly

The regional economic index shows solid growth, little inflation.
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Bonds inched higher and stocks caught a brief bid after the Philadelphia Federal Reserve's index of regional manufacturing activity came in stronger than expected without signaling inflation.

The Philly Fed's index, which is thought to reflect national trends, rose to a four-month high of 17.5 in August from 9.6 in July. The index rose above the forecast of economists polled by Reuters, who on average expected the index to rise to 14.5.

Key indicators such as general business activity, new orders, shipments and employment all increased from July.

Importantly for inflation watchers, the prices paid index dropped slightly to 25.9 in August from 26.5 in July and the prices received index dropped sharply to 3 from 12.

Bond prices were recently higher, though most of the advance came overnight on a report that Japan, the largest holder of U.S. government bonds, increased its holdings of Treasuries over the past week. The benchmark 10-year Treasury bond was recently up 12/32 while its yield fell to 4.22%.

Bonds also benefited from an increase in jobless claims in the latest week and a weak reading in July leading economic indicators.

The better-than-expected Philly Fed survey sparked a little bounce in major stock averages. The

Dow Jones Industrial Average

was recently up 25.15 points, or 0.04%, at 10,575.86, mostly due to support from a 4% gain in the shares of

Altria

(MO) - Get Report

.

The broad market remained pressured by disappointing earnings from the likes of

Salesforce.com

(CRM) - Get Report

and

Limited Brands

(LTD)

, as well as news of a follow-on stock sale by

Google

(GOOG) - Get Report

. The

S&P 500 index

was down 0.45 point, or 0.04%, at 1219.79 and the

Nasdaq Composite

was down 4.42 points, or 0.21%, at 2140.72.

While both of the Philly Fed's price indices fell in August, the sharper drop in the prices received index confirmed a trend seen in Wednesday's report on July producer prices: Businesses appear unable to pass along their costs.

The report said that firms in the region continued to report increases in the prices for inputs, while they held the prices of their own products steady.

The Philly Fed also introduced a special question about energy-price expectations in its August survey. It found that 76% of regional firms were expecting energy prices to continue rising by 5.4% on average through the balance of the year. Prices of raw materials also are expected to rise by 2.8%, according to 65% of the firms polled.

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;

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