Commodity Prices, Inventories Cool Off : Economy: Positive reports from Philadelphia Fed and Commerce Dept. lift the stock market.

The Federal Reserve Bank of Philadelphia reported Thursday that prices for raw materials and finished goods fell this month in the Philadelphia area, while manufacturing continued to expand.

At the same time, the Commerce Department reported that business inventories increased only moderately in July, easing concerns that excessive stockpiles could be a major drag on the economy for the rest of the year.

Financial markets reacted positively to both reports, with the Dow Jones industrial average soaring nearly 60 points. The 0.3% gain reported in business inventories is the fourth straight increase but the smallest since inventories fell in March. The size of the backlog was less than half the 0.7% rise anticipated by analysts.

The Philadelphia Fed’s September prices-paid index for raw materials fell to 40.4 from 48.4 in August, while its prices-received index for manufactured goods fell to 15.0 from 24.5. The indexes are considered bellwethers of the national economic picture.

The decline comes after last month’s survey found prices paid and received by manufacturers for raw materials surged to five-year highs. At the time, the news was a surprise because other reports showed little price growth.

“Today’s numbers signal some cooling off in commodity type inflation,” said Michael Moran, chief economist at Daiwa Securities America in New York.

The Philadelphia Fed also said its index of general economic activity rose to 14.8 from 13.9 last month, and its index of future economic activity rose to 27.3 from 26.7 in August.

Economists at Stone & McCarthy Research Associates of Princeton, N.J., said the survey suggests that general economic activity in the Philadelphia Fed district is expanding at about the same pace as in recent months.

Nevertheless, Moran cautioned against reading too much into the drop in the prices component of the survey, saying that it is traditionally a volatile part of the index. “Previous large increases or decreases have often turned out to be just blips,” he said.

Despite the decline in the prices-paid index, it’s still above July levels, indicating signs of inflation are still present, economists said.

The Commerce Department said inventories totaled a seasonally adjusted $891.5 billion, up from $889.1 billion in June.

The increase follows a 0.4% rise in June and a 1.2% buildup in May.

The May advance, the largest since inventories climbed 1.3% in October, 1987, prompted some analysts to predict slower economic growth in the second half of this year if sales failed to keep pace.

Separately, the Labor Department said 3,000 fewer Americans filed first-time claims for unemployment benefits last week, the lowest level in three weeks. It said 327,000 people filed jobless claims in the week ended Sept. 10.