RTTNews - Manufacturing activity in the mid-Atlantic region is showing some signs of stabilizing, according to a report released by the Federal Reserve Bank of Philadelphia on Thursday, with the index of activity in the sector unexpectedly climbing into positive territory in August.

The Philly Fed said its index of current activity rose to 4.2 in August from a negative 7.5 in July, with a positive reading indicating growth in the sector. Economists had been expecting a more modest increase to a negative 2.0.

With the bigger than expected increase, the index rose above zero for the first time since September of 2008 and reached its highest level since November of 2007.

However, Peter Boockvar, equity strategist for Miller Tabak, noted, The data measures the direction of improvement, not the degree. So, don't extrapolate that we are at November '07 output levels.

A turnaround in new orders contributed to the improvement in the sector, with the new orders index rising to 4.2 in August from a negative 2.2 in July. The shipments index also jumped to 0.6 from a negative 9.5 in the previous month.

The report also showed that the inventories index rose to 0.3 in August from a negative 15.4 in July. This marks the first positive reading for the inventories index since September of 2007.

Boockvar said the positive reading for the inventories index presents a clear message that the inventory drawdown has run its course

At the same time, the Philly Fed said that firms continued to report declines in employment, although the job losses were not as widespread. The number of employees index rose to a negative 12.9 in August from a negative 25.3 in July.

On the inflation front, the report showed that the prices paid index rose to 10.0 in August from a negative 3.5 in July, while the prices received index rose to a negative 1.5 from a negative 21.5 in the previous month.

The Philly Fed added that the indicators of future activity improved slightly in August and continue to suggest that firms are expecting better conditions over the next six months.

The future general activity index remained positive for the eighth consecutive month, rising to 56.8 in August from 51.9 in July.

Net-net, the data confirms for now the 2nd half inventory/manufacturing recovery hopes, Boockvar said. The stock market, however, has discounted this and will need confidence that the rebound is something that can be sustained into 2010 in order to see another leg higher.

Earlier this week, the Federal Reserve Bank of New York released a report showing that conditions for New York manufacturers improved for the first time in well over a year in the month of August, with the index of activity in the sector coming in well above expectations.

The New York Fed said its general business conditions index rose to 12.1 in August from a negative 0.6 in July, with a positive reading indicating an expansion in the manufacturing sector. Economists had been expecting the index to increase more modestly to 3.0.

With the bigger than expected increase, the index showed its first positive reading since coming in at 0.8 in April 2008, and it reached its highest level since coming in at 25.0 in November 2007.

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