Manufacturing firms responding to the monthly Business Outlook Survey suggest that regional manufacturing activity con-tinued to grow at a moderate pace in March. The survey's broad indicators for general activity, new orders, shipments, and employment all remained positive. Firms continued to report price pressures, but responses suggest that pressures have eased from the previous month. The survey's broad indicators of future activity remained at levels consistent with continued optimism.

The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, edged slightly higher, from a reading of 10.2 in February to 12.5, its highest reading since April of last year (see Chart). Indexes for new orders and shipments remained positive but weaker than their February levels. The new orders index decreased 8 points, to 3.3, while the shipments index declined 12 points, to 3.5. The indexes for both delivery times and unfilled orders, which recorded slightly positive readings last month, fell back into negative territory this month, suggesting faster deliveries and a decline in unfilled orders.

Firms' responses suggest a slight pickup in levels of employment this month. The current employment index, which has been positive for seven consecutive months, increased 6 points. Twenty-two percent of the firms reported an increase in employment, compared to 15 percent in February. Firms reporting a longer workweek (20 percent) only narrowly outnumbered those reporting a shorter one (17 percent), and the current workweek index decreased 7 points.

Things remain shaky, tenuous, nerve-racking, uncertain, unpalatable, and in terms of outright price levels, nauseating. That said, bond markets have generally been able to claw back to slightly better levels than those seen at the open and are currently contending with pivot points at yesterday's weakest levels.

In terms of 10yr yields, references to "2.29" are more appropriately referring to 2.285-ish. So 10's are really just getting to their first test of this pivot presently.

MBS had been contending with a similar pivot at 102-04 and so far, look to be breaking it with current prices at 102-06, down only 3 ticks from yesterday's 5pm levels and actually 2 ticks improved from yesterday's 3pm levels.

More than any of the economic data, bond markets are getting a lift from short covering among the more tactical (shorter term considerations, i.e. hedge funds and CTA's [commodity trading advisors, etc..) trading crowd, leaving the door open for the "real money" crowd (unlevered, and generally more strategic concerns such as insurance/pension funds and banks) to come back in on the long side of the market.

We hope they're not coming in too soon as the 2.29 pivot, although a great choice, isn't as safe a choice as the 2.42 absolute 7 month ceiling. We're reasonably sure we'll bounce back to lower yields, but we're not exactly sure when. We hope it will be today for the sake of some rate sheet relief with our audience in mind, but are a bit hesitant to "promise" that it's on the way.

To that end, hopefully the Philly Fed survey out in a few minutes will be informative, and be able to muster a little extra bid-side despite the general lack of economic data impact on a market that's mostly trading technically.

* Empire State Index 20.21 vs 17.50 consensus and 19.53 in Feb
* Employment component up to 13.58 vs 11.76 last time
* Big jump in prices paid from 25.88 to 50.62
* Prices Paid Highest since June 2011
* Overall Index highest since June 2010

The March Empire State Manufacturing Survey indicates that manufacturing activity in New York State expanded at a moderate pace. The general business conditions index was little changed at 20.2, its fourth consecutive positive reading.

The new orders and shipments indexes were both positive but slightly lower, indicating continued growth in orders and shipments, though at a somewhat slower pace than in the last month.

The prices paid index rose a steep 25 points to 50.6, its highest level since summer 2011, and the prices received index was positive but two points lower than in February.

Employment indexes rose and indicated continued growth in both employment levels and the average workweek.

Indexes for the six-month outlook, though generally somewhat lower than they were last month, conveyed a high degree of optimism, and the capital spending index rose to its highest level in more than a year.

*PPI +0.4 vs +0.5 consensus and +0.1 last month
* Core up 0.2 as expected and better than Jan's +0.4
* Smallest rise since Sept 2011
* Year over year, smallest rise since 8/2010

The Producer Price Index for finished goods advanced 0.4 percent in February, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Finished goods prices rose 0.1 percent in January and decreased 0.1 percent in December. At the earlier stages of processing, the index for intermediate goods moved up 0.7 percent and crude goods prices increased 0.4 percent. On an unadjusted basis, the finished goods index rose 3.3 percent for the 12 months ended February 2012, the smallest year-over-year rise since a similar 3.3-percent advance in August 2010.

*Claims at 351k vs 356k consensus
*Previous week revised higher to 365k from 362k
*4 week average flat at 355,750

In the week ending March 10, the advance figure for seasonally adjusted initial claims was 351,000, a decrease of 14,000 from the previous week's revised figure of 365,000. The 4-week moving average was 355,750, unchanged from the previous week's revised average of 355,750.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending March 3, a decrease of 0.1 percentage point from the prior week's unrevised rate of 2.7 percent.

The advance number for seasonally adjusted insured unemployment during the week ending Mach 3, was 3,343,000, a decrease of 81,000 from the preceding week's revised level of 3,424,000.

The 4-week moving average was 3,394,250, a decrease of 25,250 from the preceding week's revised average of 3,419,500.