Economic news continues to provide signs of recovery, leaving traders in a buying mood. In the last two sessions, a number of economic reports have been released including the consumer price index, industrial production, housing starts, jobless claims and the Philly Fed survey. Manufacturing activity has been a focus and this has been a positive for the stock market since this sector of the economy seems to be leading the recovery.

Industrial production rose for the second straight month in August, rising 0.8 percent. In July, industrial production ended an eight month losing streak. The year on year rate remains weak at a decline of 10.7 percent, but this is down from 12.4 percent in July. The "cash for clunkers" program definitely was a positive for production the past few months, but production increased 0.6 percent even when motor vehicles are excluded. The fact that manufacturing has shown such solid improvement has benefited stocks like Alcoa (AA) and DuPont (DD).

Earlier in the week, the Empire State Mfg. Survey moved higher than expected and this continued with the Philly Fed Survey released this morning. Business conditions in the Philadelphia region rose sharply in September with the index rising nearly 10 points to 14.1. This easily exceeded expectations for a figure closer to 8.0. Any reading above zero is considered a state of expansion, although data inside the report wasn't as bullish. New orders remained positive, but fell to 3.3 from 4.2 and most importantly, the employment index actually worsened to a level of -14.3 from -12.9. Nonetheless, this report was extremely week earlier this year when the headline figure was near -40.0.

Traders have gotten plenty of data on the housing sector to digest this week as well. In September, the housing market index rose for the fifth month in a row to a level of 19, up a point from August. However, mortgage applications fell 10.3 percent for the week ending Sept. 11 with the refinance component down 7.4 percent. The 30-year fixed mortgage rose 6 basis points to 5.08 percent.

Housing starts in August continued to improve, rising to an annualized rate of 0.598 million units, up from 0.581 million in July. This matched expectations, although single family starts fell with multi-family starts coming off recent lows. Year on year, housing starts are down 29.6 percent, showing just how severe the recession was for this sector of the economy.

Jobless claims for the week ending Sept. 12 fell to 545,000 from a revised level of 550,000 in the prior week. This was much better than estimates for a reading of 575,000. The four-week moving average fell 8,750 to 563,000, raising expectations for payrolls data in September. Continuing claims were disappointing, falling 129,000 to 6.230 million, slightly above the four-week moving average at 6.180 million, its lowest level since April.

Traders have gotten data on inflation this week, but the consumer price index came in as expected, unlike the producer price index. The CPI rose 0.4 percent in August with the core rate, which excludes food and energy prices, rising just 0.1 percent. Year on year, the headline figure is down 1.4 percent with the core rate up 1.5 percent. This news gives the Fed time to unwind their balance sheet, although the Fed will need to be diligent in making sure inflation doesn't get out of control when growth picks up in the global economy.

Oil prices are slightly higher Thursday, trading just below $73 a barrel. On Wednesday, the EIA reported that crude inventory levels fell by 4.7 million barrels in the week ending Sept. 11. This pushed prices higher and this has continued Thursday. Positive economic data has also benefited commodities as projections for demand down the road increased. Another reason for strength in crude has been the weakness in the dollar since dollar denominated assets, like oil, tend to increase in price as the dollar falls.

There aren't any reports scheduled for Friday, although it is quadruple witching. The calendar for next week is rather light, though it does include the always important FOMC meeting announcement on Wednesday.

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site