After it got the CPI report out yesterday, the Labor Department closed down its shop along with the rest of the government. The weekly report on new claims for unemployment insurance was not released today.

Bond and stock traders, frantic for their daily dose of economic information, all turned their attention to Philadelphia and the Philly Federal Reserve Bank's monthly report on general business conditions in District 3.

And, boy oh boy, if you were a bond market participant, it was some blockbuster of a report. Talk about your bad economic news! Manufacturing activity, employment, prices paid, and prices received were not only down, but down a lot more than was expected. The Index of Manufacturing Activity dropped all the way from 25.5 in October to 7.9 in November. The Prices Paid Index -- an indicator of inflation -- dropped from 30 in October to 12.3 in November.

All of this was music to the ears of bond traders. A slow economy means controlled inflation and falling bond yields which translate into higher bond prices. The conventional wisdom in the financial markets is that a lowered cost of borrowing money will inevitably stimulate economic activity, with an accompanying resurgence of corporate earnings. So, stock market participants look to the bond market for direction and run the prices of stocks higher in anticipation of earnings improvements due to declining interest rates. At the closing bell today the stock and bond markets had both advanced significantly.

Today's report from Philadelphia makes it hard to understand what was going through the minds of the Federal Open Market Committee yesterday when they voted to take no action to stimulate the economy. The presidents of the 12 district federal reserve banks are all members of the FOMC. But, the voting members consist of only the 7 Fed governors, the president of the New York district bank, and 4 other presidents selected on a one-year rotating basis. If the president of the Philadelphia district is a voting member, he or she was not in the majority yesterday.

Byline: Lafferty (MF Merlin)