The Federal Reserve's Open Market Committee wrapped up its two-day, behind-closed-doors meeting much as expected, promising to keep interest rates in the sub-basement "for an extended period of time," even though it cited a stronger economic outlook and upbeat indicators. The target rate will stay at 0% to 0.25%.

Stocks, not surprisingly, finished nicely higher on Wednesday after two bad sessions. The day's highs saw the Dow rising about 175 points, but the close moderated somewhat to 9,361.61, up 120.16, or 1.3%. The S&P 500 gained 11.46 points, or 1.2%, to close at 1,005.81 after a high of 1012, while the Nasdaq Composite rose 28.99 points, or 1.5%, to 1,998.72, off a high of 2015.

INDEX WRAPUP, Aug. 12:

The three major indexes all seem to be leveling off in new higher territory:

DOW JONES INDUSTRIAL AVERAGE:

S&P500:

NASDAQ COMPOSITE:

To get back to the Fed, it said in addition that it will rein in its purchases of long-term Treasurys and let the program fade away by the end of October, a decision that could send long-term yields higher. (The Fed's plan to buy $300 billion in long-term government bonds drew a lot of fire and didn't do much to keep long-term rates down.)

However, it also said it will continue to purchase up to $1.25 trillion in mortgage-backed securities and other debts from Fannie Mae and Freddie Mac in an effort to keep mortgage rates down and stimulate the housing market.

Economic activity is leveling out and conditions in financial markets have improved further in recent weeks, the committee reported, pointing to stabilizing household spending -- although that's still not terrific, what with job losses, stagnant income, low housing wealth and tight credit.

The FOMC said it expected the economy to remain weak for a while but at least with so many unused resources, inflation shouldn't be a problem for some time to come.

Since the last meeting in late June, most economic indicators have improved, even if they are still showing a contracting economy. Here are seven promising signs:

--The Leading Economic Indicators, according to The Conference Board, have risen for three straight months after falling steadily since their peak in July 2007, and their six-month growth has picked up to the highest rate since the first quarter of 2006. Seven of the 10 Conference Board indicators were up; starting with the largest they were interest rate spread, building permits, stock prices, weekly initial claims (inverted), average weekly manufacturing hours, index of supplier deliveries and manufacturers' new orders for consumer goods and materials. The negative contributors were real money supply, manufacturers' new orders for nondefense capital goods and index of consumer expectations. The index now stands at 100.9, with 2004 equaling 100.

--The country's gross domestic product fell at a 1% annualized rate in the second quarter, compared with the 6.4% drop in the first quarter. Which is to say, the economy is no longer falling at terminal velocity.

GROSS DOMESTIC PRODUCT, latest:

--Stock prices are considerably up since March; the S&P, for instance, has gained 48% since its March low; note the chart above.

--Nonfarm payrolls fell by the smallest number in nearly a year in July -- 247,000 -- and the unemployment rate fell back to 9.4%.

NONFARM PAYROLL LOSSES:

--The Institute for Supply Management index inched in July toward the 50% line that marks expansions from contractions, and new orders were the best in two years.

--Home sales and construction data seem to have bottomed, although prices are still falling.

--Industrial production seems about to rise for the first time in nine months, as companies in almost every industry slash their inventories at a record pace.

Not all the data have been positive. Consumer sentiment remains weak, owing largely to massive job losses. The only growth in incomes has come from government transfers like unemployment benefits and the tax cut. Credit remains very tight. Households continue to pay off their debts, though, very good for consumers if not immediately good for the economy:

OUTSTANDING HOUSEHOLD DEBT AS A RATIO OF DISPOSABLE INCOME (4-quarter moving average)

Most private sector economists agree with the Fed that the recession will be over soon, but that consumer spending will stay subdued. The Fed's balance sheet has grown from about $800 billion before the crisis to about $1.97 trillion. At some point, however, the Fed will want to reduce its balance sheet -- very, very cautiously, one hopes -- as bank lending returns.

More interesting news: The Mortgage Bankers' Association index rose 1.1% last week for the third straight small gain in a row. The refinance index fell 7.2%, probably reflecting a 21-basis-point jump in the 30-year fixed rate, at 5.38% at week's end, in turn reflecting the greater demand. (Median home prices fell a record 15.6% year-over-year in the second quarter, but that came after the traditional rise in spring prices, in this case 4%, from $167,000 to $174,000.)

Equally important is that total housing inventory fell for the third month in June, dropping 0.7% to 3.82 million units on the market. At the current sales pace, that represented a 9.4-month supply, down from a 9.8-month supply in May. Even better, year over year inventory was down by 14.9%. True, about a third of that drop was due to sales of foreclosed homes, but anything that lessens housing inventory is to be desired. Beware, though: Prices and sales could trend down again, especially when the impact of the first-time homebuyers tax credit starts to fade after December 1.

MONTHS OF HOUSING INVENTORY as of June:

In stocks, advancers were ahead of decliners by about 2.7 to 1 on the NYSE and 2.5 on the Nasdaq. Banks and insurers made up some of yesterday's losses, with Citigroup (C) and Hartford Financial (HIG) both up over 7% , and Wells Fargo (WFC) and Bank of America (BAC) in the green.

CITIGROUP:

On the Nasdaq, another bank was a top gainer, Community Capital Corp. (CPBK), up 30%:

COMMUNITY CAPITAL CORP.:

Continuing in not-bad economic reports, the U.S. trade deficit in tangible goods and services expanded moderately in June largely due to higher oil prices and a larger oil deficit (the number of barrels that were imported in June rebounded 7.1%) as the overall U.S. trade gap widened to $27.0 billion from a revised $26.0 billion deficit the previous month. But exports advanced 2% while imports rebounded 2.3%, and excluding petroleum, the gap shrank significantly to $20.0 billion from $22.6 billion in May.

Which producers in the U.S. went to the head of the class? By end-use categories, the June advance in exports was led by industrial supplies (up $1.2 billion) and by capital goods except autos (up .4 billion). Also posting gains were foods, feeds, and beverages exports. Automotive was in the positive category but essentially was flat; consumer goods exports edged down marginally.

U.S. TRADE BALANCE, IN BILLIONS, seasonally adjusted:

Outside of oil, import numbers show weak domestic demand. Businesses are not adding to stockroom shelves, at least not from imports. Consumer goods imports dropped a sizeable $1.7 billion and capital goods imports were down but basically flat. Today's report is good news for manufacturers of exports in the U.S. as exports have been boosted by a weaker dollar. However, businesses apparently are still concerned about domestic demand as they have cut back on nonoil imports. The market didn't have much of a response to the news.

One thing I'm looking for is a sharp and sustained rise in the Baltic Dry Index, a leading indicator that provides a clear view into the global demand for commodities and raw materials. The index measures shipping rates for dry bulk goods -- coal, iron, ore, grain, steel -- on dry bulk cargo ships on some three dozen sea routes around the world.

Demand for raw materials gives us a glimpse into the future. Producers naturally buy raw materials when they want to start building more finished goods and infrastructure like automobiles, heavy machinery, roads, factories, houses and such. Producers stop buying raw materials when they have excess inventory and when they stop capex projects -- period.

The Baltic Dry Index is also a compelling indicator because it's difficult to manipulate the cost of moving raw materials by sea in container ships. If fewer producers need dry bulk cargo, ships will be in less demand, causing a drop in the price that shippers can charge, and the Baltic will fall. Conversely, as shipping increases, you can bet that shipping rates will rise. It's driven by very clear forces of supply and demand.

BALTIC DRY INDEX:

The demand that affects the Baltic Dry Index is the demand of commodity buyers who need the raw goods for production. With shipping rates easily capable of hitting over $150,000 a day, nobody is going to pay to book a Capemax cargo ship who isn't actually going to use it.

The supply that affects the Baltic Dry Index is the supply of ships available to move materials around the globe. This can't be distorted either, because it takes years to build a new ship that could be put into service to increase supply, and it costs far too much to leave ships empty in an attempt to decrease supply.

Here's what it typically means when the Baltic Dry Index turns around and starts moving up:

--Global economies are starting to, or continuing to, grow

--Companies are starting to, or continuing to, grow

--Commodity prices should start to, or continue to, increase in value

--Stock prices should start to, or continue to, increase in value

This chart of Diana Shipping (DSX), as do other dry-bulk shipping company charts, largely tracks the Baltic Dry Index:

DIANA SHIPPING:

While the BDI typically declines in the lead-up to and during a recessions, a decline in the index doesn't always necessarily mean a recession is imminent, but a steep fall must be watched. Is the Baltic Dry Index the grail, the big kahuna -- the one leading indicator that will say to us, "Buy now"? Of course not. But in conjunction with four or five others, it can tell us a great deal.