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Updated from 11:02 a.m. EDT

Thursday's economic data helped build the case for an economic rebound, with a reading on manufacturing in the Philadelphia area confirming strength on several fronts.

Business activity in the Philadelphia region in August had the strongest rise in over five years, the Federal Reserve Bank of Philadelphia reported.

The bank's index of business conditions rose to 22.1 from 8.3 last month. Any figure above zero indicates more manufacturers see business improving rather than worsening. Economists had expected a rise to 10.

The main drivers of strength were merchandise shipments and new orders, as retail sales accelerated and business investment improved in July, forcing companies to put in orders and step up production.

"The gain was pretty impressive and confirms a wide variety of evidence the economy is improving noticeably," said Stephen Stanley, senior market economist at Greenwich Capital Markets. "New orders and shipments components did contribute with a rise, even though not at the same pace as the overall figure. But one downbeat aspect was the employment measure, which moved back into negative territory, showing we continue to be in jobless recovery."

In a separate report, first-time unemployment claims fell to the lowest level in six months, the Labor Department reported Thursday.

Initial jobless claims dropped by 17,000 to 386,000 in the week ended Aug. 16, from a revised 403,000 the previous week. Economists had expected jobless applications to fall slightly to 395,000, according to

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Last week was the fourth in the past five in which the number of claims have held below the critical 400,000 level, which signals a stable labor market. The four-week average, which smoothes out weekly variations, fell by 1,250 to 394,250.

But initial claims for the previous week, ended Aug. 9, were revised upward to 403,000.

Some economists say last week's number could be revised higher due to blackout-related drops in claims. A Labor Department spokesman said up to 3,000 were estimated to not have been filed in one state affected by the power failure, without stating which.

Meanwhile, the index of leading economic indicators had a 0.4% rise in July to 112.5, in-line with economists' estimates and a slight increase from a 0.3% reading the prior month. June figures were revised higher from a 0.1% increase, the Conference Board reported.

Stanley noted the index rose for the fourth month in a row, and that it would break a record if it stayed up this month. "One more increase would be a very convincing confirmation the recovery is for real, and I think we'll see that in the August reading," he said.

The number, which is a compilation of previously announced figures, such as new orders, jobless claims and building permits, was at 100 in 1996.