US regional factory activity, job market improve

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Manufacturing activity in the US Mid-Atlantic region hit a two-year high in November, indicating the economic recovery was gaining momentum, while the trend in claims for jobless aid continued downward.

The factory survey from the Philadelphia Federal Reserve Bank on Thursday eased fears of a slowdown in manufacturing after a report this week showed US industrial output barely grew last month as the effect of government stimulus faded.

"Manufacturing is leading this recovery. It's the strongest part of the economy. It's not booming but it's probably the first place where you'll see job growth," said Christopher Low, chief economist at FTN Financial in New York.

The Philadelphia Fed's business activity index, one of the earliest monthly indicators of the health of U.S. manufacturing, rose to 16.7 last month, the highest since June 2007. It was the fourth straight monthly increase.

Financial markets had expected the index to improve to 12 from October's 11.5. A reading above zero indicates growth.

Separately, the Labor Department said initial claims for state unemployment benefits were flat at 505,000 last week, but a four-week moving average of claims, a better indicator of underlying trends, dropped to its lowest in almost a year.

A third report gauging the economy's prospects rose for a seventh straight month in October, reaching a two-year high.

US stock prices were unmoved by the data as Bank of America-Merrill Lynch cut its 2010 growth forecasts for the semiconductor sector, pressuring technology shares. Stocks fell for a second straight day after hitting 13-month highs this week.

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The US economy resumed growth in the last quarter, driven largely by government stimulus. There are fears recovery will be sluggish because of rising unemployment. The jobless rate hit 10.2% last month, its highest in 26-1/2 years.

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