Why Bernanke should be smiling

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Another sign that the economy may be headed for a soft landing, rather than a hard one: today's September manufacturing report from the Institute of Supply Management–which showed the sector slowing a bit but still expanding. It was seen by economists as a sort of a tiebreaker after a series of mixed manufacturing reports. Stocks tumbled after the recent negative survey from the Federal Reserve Bank of Philadelphia, but both the Empire State and Chicago purchasing managers index reports last week were rosier. So all eyes turned to the ISM report for a mountaintop view of things.

The group's manufacturing index fell to 52.9 from 54.5 in August. But keep those numbers in context. According to the ISM, when the index is at this level. it usually works to about a 4.4 percent increase in gross domestic product. If you took the September number alone and annualized it, it would correspond to a 3.7 percent increase in GDP–though few economists think the economy is growing that quickly right now. The econ team at Bear Stearns bottom-lines it this way: "This report paints an outlook that is consistent with stable Fed policy in the near term. Activity is slowing, but manufacturing is still expanding at a solid pace."

Dig a little deeper in the ISI data, and you'll find another little info nugget that Ben Bernanke and company were probably pleased to see. The ISM's prices paid index came in at 61, down from 73 in August, and is now right at the average for the past eight years, according to economist Robert Brusca. It's another sign that lower energy prices are starting to work their way through the economy, helping bring down inflation.