Optimism over the economy was tempered, however, by other data on Thursday showing a drop in sales of previously owned homes and only a small rise in a gauge of future growth.

“The numbers we have seen today provide some hints that the domestic economy is doing a little bit better, even with the challenges that are unfolding in Europe,” said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut.

Initial claims for state unemployment benefits slipped 6,000 to 403,000 last week, the Labor Department said. A four-week average, which smoothes out weekly volatility to give a better view of trends, hit its lowest level since April.

Separately, the Philadelphia Federal Reserve Bank’s business activity index rebounded to 8.7 in October, the highest reading in six months, from minus 17.5 in September.

A reading above zero indicates factory activity is expanding in the region, which covers eastern Pennsylvania, southern New Jersey and Delaware.

U.S. stocks initially rose on the data, but surrendered most gains on nagging doubts over whether European leaders would decisively deal with the euro zone debt crisis at a summit this weekend. Prices for U.S. Treasury debt were little changed while the dollar was a touch weaker against a basket of currencies.

Fears had been mounting that the sickly U.S. economy was heading back toward recession after growth wobbled in the first half of the year and after consumer confidence plunged in August amid signs both the United States and Europe were having trouble coming to terms with their huge debts.

But the recent stream of data, including figures on retail sales and trade, suggest output sped up in the third quarter.

Analysts estimate U.S. gross domestic product grew at an annual pace of anywhere between 2.3 and 2.7 percent, a sharp step up from the second quarter’s tepid 1.3 percent rate.

“There is little evidence the economy is ready to enter a downturn based on the Philadelphia Fed (data),” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank in New York.

JOBS MARKET TONE IMPROVING

That view was also underscored by the four-week moving average of initial jobless claims. The claims data covered the survey week for the government’s closely watched nonfarm payrolls count for October.

Initial claims dropped 25,000 between the September and October survey periods, suggesting a step-up in nonfarm employment after payrolls increased 103,000 last month.

After spiking in mid-September, jobless claims appear to have settled near the 400,000 mark that is usually associated with some improvement in the jobs market.

Weak unemployment is a thorny issue for the Federal Reserve, which is weighing further options to boost output and lower the jobless rate after slashing interest rates to near zero and pumping about $2.3 trillion into the economy.

On Thursday, St. Louis Fed President James Bullard acknowledged the improved tone in economic data but his counterpart at the Cleveland Fed, Sandra Pianalto, did not believe growth would pick up soon. For more see

While most parts of the U.S. economy are plodding along, the housing market continues to show little signs of life, however.

Sales of existing homes dropped 3.0 percent to an annual rate of 4.91 million units in September, the National Association of Realtors said.

In another report, the Conference Board said its index of leading economic indicators edged up 0.2 percent in September, pointing to continued sluggish growth. Still, it warned that the economy faced a 50 percent chance of recession whereas a month ago it said recession risks were lower than that.

Most economists, however, see a lower chance of recession, and signs of continued manufacturing expansion have bolstered hopes another downturn can be avoided.

Factories in the Mid-Atlantic region this month reported growth in order books after shrinkage for two straight months. Shipments rose too and there was an increase in unfilled orders, although employment slowed from September.

Still, manufacturers remain leery on the economic outlook.

Diversified manufacturer Danaher Corp, air conditioner maker Ingersoll Rand Plc and electrical products company Cooper Industries Plc all reported higher-than-expected earnings but were guarded about the fourth quarter.

“Clearly, we’re seeing some moderation in the economy,” Danaher CEO Larry Culp said. “(But) I don’t think we’ll see anything like an ’08, ’09 collapse.”

(Additional reporting by Pedro da Costa and Jason Lange in Washington and Nick Zieminski in New York; Editing by James Dalgleish)

Mississippi and New Mexico had the highest poverty rates, with more than one out of every five people in each state living in poverty. Mississippi’s poverty rate led, at 22.4 percent, followed by New Mexico at 20.4 percent.

New Hampshire had the lowest poverty rate, at 8.3 percent, making it the only state with a poverty rate below 10 percent.

Twelve states had poverty rates above 17 percent, up from five in 2009, while poverty rates in 10 metropolitan areas topped 18 percent, the data showed.

“We saw the recession hit and unemployment increase, but we haven’t seen a dramatic drop in unemployment,” said Elizabeth Kneebone, a senior research associate focusing on metropolitan issues at the Brookings Institution.

“Because we’re still in this weak recovery, we could see these numbers get worse before they get better,” she added.

The U.S. recession that began in 2007 took a steep toll across the country, sparing only a few places from rising joblessness and crashing incomes. More than a year after the recession officially ended in 2009, the U.S. unemployment rate remains above 9 percent; the poverty rate rose to 15.3 percent in 2010 from 14.3 percent in 2009.

“No state had a statistically significant decline in either the number of people in poverty or the poverty rate between 2009 and 2010.” the Census reported.

Kneebone, of the Brookings Institution, noted that many of the big increases in the poverty rate in the first year of the recession were centered in the inner-mountain west and the Sunbelt.

“As the recession deepened and spread to other industries, other regions of the country also saw their numbers increase,” she said, noting that areas reliant on manufacturing had not fully recovered from a downturn earlier in the decade when the recession struck.

The depth of poverty levels increased in 2010, with 6.8 percent of people having incomes that were no more than half of the federal government’s official poverty threshold. That was up from 6.3 percent in 2009.

Poverty ran deepest in Washington, D.C., where one in 10 people had incomes less than 50 percent the threshold.

The Census also looked at the 366 metropolitan areas that account for more than 80 percent of the U.S. population.

The Texas region defined by the cities of McAllen, Edinburg and Mission had the highest poverty rate in the country — 33.4 percent. It was followed the Fresno, California, area at 26.8 percent.

Poverty rates topped 18 percent in metropolitan areas centered around El Paso, Texas; the cities of Bakersfield, Modesto and Stockton in California; Augusta, Georgia; Memphis, Tennessee; and both Durham and Greensboro in North Carolina as economic problems spread from core urban areas to the suburbs over the decade.

“Many communities are facing this challenge in a magnitude they’ve never had to deal with before,” said Kneebone, who said there are now 2.7 million more people in suburbs than cities.

Despite the deep poverty levels in the District of Columbia, the nation’s capital, the Washington, D.C., metropolitan area had the lowest poverty rate in the nation, at 8.4 percent, due to its wealthier suburbs. Honolulu had the second lowest, 9.1 percent.

The numbers of people collecting food stamps and relying on Medicaid, the government healthcare program for the poor, skyrocketed in recent years. The Census also found that in 2010 more people collected other forms of public assistance than in 2009.

In 2010, 3.3 million people received public assistance at some time in the year, an increase of 300,000 from 2009. Among U.S. households, about 2.9 percent received public assistance in 2010, up from 2.7 percent in 2009.

The states with the highest public assistance participation included Alaska, Maine, Vermont and Washington. The states with the lowest rates were Louisiana, Alabama and Wyoming.

Although Alaska and Maryland had poverty rates of 9.9 percent in 2010, the margins of error for those states were greater than 0.3 percent.

(Editing by Leslie Adler)

But economists saw little risk of a severe slump. The slowdown should be modest and Asia’s policymakers have room to ramp up government spending or lower official interest rates in case the outlook worsens.

Although China’s 2012 growth will probably dip below 9 percent, none of the 30 economists surveyed thought it would breach the 8 percent line seen as the minimum for assuring sufficient job creation to keep up with urban migration.

“Contrary to what appears to be the dominant view among investors, we don’t see recession anywhere in Asia,” Deutsche Bank’s Asia economist Michael Spencer said.

“Asia is heading into a period of six to nine months of below average growth, reflecting mostly the deceleration of activity in the advanced economies,” he said.

Weak growth in the United States and Europe is already crimping exports across Asia, and economists have penciled in a sharper slowdown in the coming quarters.

Slower growth should bring inflation relief. The consensus view among economists now shows India as the only country in the polling region likely to increase interest rates in 2011.

In the previous quarterly poll, conducted in July, economists had predicted more rate rises by the end of 2011 in India, Indonesia, Thailand, Taiwan, Malaysia, New Zealand, Australia and South Korea.

The Reserve Bank of India will probably raise rates at its meeting next week, but that is widely expected to be the last move in its aggressive tightening cycle. Economists expect two quarter-point cuts in 2012.

Indonesia already lowered rates in a surprise move on October 11, and the poll shows economists expect one more trim in 2012. New Zealand is the only country in the survey where economists expect a rate increase in 2012.

AS GOES CHINA

China is the linchpin. If its 2012 growth slows to 8.6 percent, as the consensus forecast predicts, the rest of Asia would feel a modest ripple. If China’s growth falls more sharply, Asia could take a direct hit.

A 1 percent decline in China’s GDP reduces growth in Singapore, Malaysia and Thailand by 0.7 percentage points, and in Indonesia by 0.3 points, Bank of America-Merrill Lynch economist Hak Bin Chua said.

“The scale of the impact has almost tripled over the past two decades,” he said, because China now imports far more than it used to from its Asian neighbors.

“The impact of a China slowdown is still estimated to be less than that of a U.S. slowdown or recession, but the two are converging and are likely to be comparable within the next decade,” Chua added.

Compared with the July poll, economists lowered 2012 growth forecasts across the board. Among the sharpest cuts were those for Malaysia and Singapore, two of the countries most closely tied to the global economy.

The forecasts show annual growth rates accelerating in 2012 in Australia, New Zealand, India, South Korea, Thailand and the Philippines. Next year’s growth rate will likely trail 2011′s in Indonesia, Singapore, China, Hong Kong and Taiwan.

(Editing by Ramya Venugopal)

The misery index — which is simply the sum of the country’s inflation and unemployment rates — rose to 13.0, pushed up by higher price data the government reported on Wednesday.

The data underscores the extent that Americans continue to suffer even two years after a deep recession ended, with a weak economic recovery imperiling President Barack Obama’s hopes of winning reelection next year.

Inez Stallworth, an underwriting assistant for a financial services company, recently gave up her car, in part because of rising costs for gasoline and groceries.

“I can’t fit it in,” said the 27-year-old Chicago resident, who said most of her extended family was getting by “paycheck-to-paycheck.”

Consumer prices rose 3.9 percent in the 12 months through September, the fastest pace in three years.

With gasoline prices high, consumers have less to spend on other things. Moreover, a rise in overall prices saps economic growth, which is typically measured in inflation-adjusted terms.

The last time the misery index was at current levels was in 1983. But in 1984 an improving economy probably helped President Ronald Reagan win reelection. This year, the index has risen more than 2 points.

INFLATION RESPITE

While the misery index rose in September, many economists expect some respite in coming months, driven by softer inflation.

Wednesday’s price data showed inflation outside food and energy rose at the slowest pace in six months in September.

Weakness in the jobs markets also accounts for some factors that could push inflation lower in coming months, economists say.

“With households facing weak wage growth and tight budgets, it is difficult to see a sustained, broad-based increase in prices,” said Bank of America Merrill Lynch economist Neil Dutta.

He said Wednesday’s data showed that businesses’ ability to raise prices on clothing, movies and toys was “hitting a wall.” Weak incomes also will make it harder for building owners to raise rents, further dampening inflation, Dutta said.

Indeed, inflation could slow to below 2 percent by mid-2012, said Capital Economics economist Paul Ashworth.

But a decline in the misery index declines due to softer inflation might not help Obama’s reelection chances much.

“Any lowering of inflation isn’t going to have much effect. People are just focused like a laser on unemployment,” said independent political analyst Stuart Rothenberg.

Analysts polled by Reuters last week saw the jobless rate — currently stuck at 9.1 percent — barely ticking down to 8.9 percent by the end of next year. With the election in November 2012, the expected decline looks unlikely to help Obama’s job prospects much.

Harold Archie, a bus driver with the Chicago Transit Authority, knows well the toll that unemployment is taking on Americans. Higher food and gasoline prices have compounded the strain on his finances since his son lost his job. Archie, 57, has been helping him financially.

Archie said his son might have a shot at getting his job back, but with a pay cut: “And he was only making $13 an hour to start with.”

(Writing by Jason Lange; Editing by Leslie Adler)

“I think the number one risk … is something coming out of this European story that spills over into the U.S. economy,” the president of the Atlanta Federal Reserve Bank, Dennis Lockhart, told an audience at the Georgia Institute of Technology on Wednesday.

In remarks that were similar to a speech he gave on Tuesday, Lockhart, who will not be a voter on the Fed’s interest-rate setting panel until next year, said he does not expect a double-dip recession.

Lockhart is viewed as leaning toward the Fed policy makers focused on full employment, known as the U.S. central bank “doves.”

He said on Tuesday financial conditions would have to worsen before the Fed would consider another round of bond purchases.

(Reporting by Matthew Bigg; writing by Mark Felsenthal; Editing by Andrew Hay and Leslie Adler)

The grim facts of the now four-year-old credit crisis and western economic funk are undeniable, even if still some distance from the ravages of the 1930s.

And there are some who argue the unhappy confluence of crippling household and government debt, policy exhaustion, aging populations and resource scarcity spells a long depression-like period of near-zero Western economic growth ahead.

But there is also a danger that all the negativity itself will push the global economy over the edge.

As Klaus Kleinfeld, CEO of the largest U.S. aluminum producer Alcoa Inc, said last week: “It almost looks like the world is worrying itself into another recession.”

The stability of the modern interlinked world economy, with its rapid transmission of information and shocks globally, has never been more dependent on confidence — confidence in the smooth functioning of markets, the predictability of government policy and future employment.

Any lack of visibility can have profound self-fulfilling consequences and fear of the future, justified or otherwise, can create a downward spiral all of its own.

If you are lucky to keep your job, anxiety about unemployment itself can delay household purchases or loans. Corporate angst about ebbing demand, government contracts, taxation changes or trade restrictions can similarly halt assembly lines, stall job creation or stymie new investment.

This is basically the dark side of what British economist John Maynard Keynes described in 1936 as the economy’s “animal spirits” — or “a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”

The same human emotions trigger often irrational retrenchment and hunkering down when confidence about the future is doused by a cacophony of disaster warnings.

Amplifying nerves right now is a barrage of disaster commentaries from both sides of the political spectrum as well as the financial industry — each appearing to outdo the other on dire warnings.

Right-of-center politicians advocating a shrinking of government warn of a debt-fueled collapse and demand deep austerity. Liberal or left-wing voices invoke economic catastrophe unless government intervenes further with another series of demand-boosting investments.

And faced with the political fallout from a largely self-inflicted implosion and taxpayer bailout over the past four years, the financial world — the prism through which many people assess the economy’s health — has developed its own understandable line in apocalyptic futurology.

But are there signs of a sentiment overshoot? Or, as Morgan Stanley economist Joachim Fels asks, has “gloom fatigue” set in?

An illustration of how the “wall of worry” may have diverged from real activity was a surprising 1.2 percent jump in euro zone industrial production in August, a month marked by the white heat of the bloc’s sovereign debt crisis.

Crucially, production jumped even as business sentiment surveys indicated a contraction of factory output for the first time in two years. What’s more, the jump was not driven by the relatively robust giant Germany but Italy, Portugal and Ireland.

Similarly, U.S. consumer sentiment surveys over the past two months — where questionnaires gauge things like purchasing plans — plumbed the depths of despair. Yet, actual retail sales data out last week showed a 1.1 percent rise last month.

Trade statistics too, despite showing some cooling in growth engines like China, also appear to defy the gloom. UK exports in August, for example, hit a record high. Chinese copper imports were their highest in 19 months in September. Shipping prices, seen by some as a rough gauge of global trade activity, have also surged some 70 percent from the mid-year doldrums.

IS IT THE PLUTONOMY, STUPID?

Of course, there may be good explanations for this divergence. Business and consumer surveys are watched closely because of their track record as leading indicators of real sector activity. Real data typically follows anecdotal survey evidence much more quickly than has been the case in recent months, as the graphics above demonstrate.

Some may also suggest that while unemployment remains high, it’s possible rising income disparity means the richest continue to buy in sufficient amounts to outweigh retrenchment at the bottom — in turn, keeping aggregate production going apace.

U.S. government data for 2010, for example, shows average annual expenditure of the richest 20 percent of households was, at $92,870, more than a combined total of the bottom 60 percent.

And for Roosevelt, confidence was rooted in fairness. “Small wonder that confidence languishes, for it thrives only on honesty, on honor, on the sacredness of obligations, on faithful protection, on unselfish performance; without them it cannot live,” he said.

Whatever the best explanation, the gap between survey evidence and real activity bears close watching for the months ahead. One of them will have to give. If surveyed gloom is correct, growth will weaken sharply into year-end and another recession on both sides of the Atlantic looms large.

“A striking gap between hard activity and survey data will need to be closed soon,” JPMorgan economists told clients.

On the other hand, it’s possible that fear itself may have been excessive and the truth more prosaic. If so, the political focus needs to be on boosting sentiment with credible policies soon.

“Until you can restore confidence you can’t move forward,” General Electric CEO and White House adviser Jeff Immelt said on Monday.

Credit Card Debt Soars as Americans Borrow Like It's 2006

Habits are hard to break: Just when you think you're firmly in control, you backslide again. Such may be the case with Americans debt addiction.

According to CardHub.com's, Q2 2011 Credit Card Debt Study, U.S. consumers accumulated a staggering $18.4 billion in credit card debt in the second quarter -- 66% more than they accumulated in the same quarter a year ago, and 368% more than in the second quarter of 2009. Based on the study, Americans will end 2011 with around $54 billion more in credit card debt than they began the year with.

"A debt increase of $18.4 billion during a single quarter is mind boggling, especially when you consider that this increase is 368% higher than what we witnessed in the same quarter two years ago," says Odysseas Papadimitriou, CEO of CardHub.com.com. The study focused on consumer debt data from the Federal Reserve's G19 report in conjunction with quarterly charge-off data to determine how much consumer debt actually increased when you consider the amount of bad debt written off the books.

The upside is that consumers ended the first quarter of this year with a significant net decrease in credit card debt -- as they had in the first quarter of 2010. However, in subsequent quarters last year, they proceeded to wipe out that reduction.

"There is no doubt in my mind that a lot of consumers are reverting back to pre-recession habits and that this is why we are witnessing such a dramatic increase in credit card debt (net of charge-offs). Anyone whose income was tied to the housing boom -- either directly or indirectly -- should realize that those years aren't coming back unless we find ourselves in another bubble," says Papadimitriou. Also troubling, say the folks at CardHub.com, is that in 2011, people seem to be spending up their debt at a faster rate than ever. Last year ended with a net increase in debt of $9.1 billion, which practically erased the net decrease of $10 billion in 2009. In contrast, 2011's projected $54 billion increase in debt is hair raising.

Overleveraging Again

To be fair, he says, part of the increase is also driven by consumers who lived within their means before the Great Recession, did not see income reductions when the housing bubble burst, and are now increasing spending because of growing optimism about the economy. That's a healthy sign. "Without being able to quantify this, my assessment is that the majority of the increase is attributed to the failure of many to realize that their disposable incomes will not be going back to "bubble levels" anytime soon," says Papadimitriou.

What does all this mean for our seesawing economy? "Our economy is in this state because a significant number of consumers wanted to overleverage themselves and regulators allowed this to take place, primarily through the housing bubble. While a trend that points to consumers reverting back to pre-recession debt levels could be construed as a sign that things are returning to 'normal', I believe it is worrisome indicator of a return to overleverage," says Papadimitriiou.

He says there are three clear takeaways from the study.

1. Without a doubt, people are much more confident about the nation's financial outlook and that more people are finding jobs (even if it is part-time).

2. Consumers are recognizing that credit cards are now safer vehicles for revolving debt, thanks to the new credit card law, which prevents issuers from arbitrarily changing a consumer's interest rate on an existing balance.

3. Some consumers simply have not come to terms with the fact that they shouldn't return to their pre-recession spending habits, no matter how much the economy recovers. Consumers need to think strategically: Maintain an excellent credit standing, ensure that you have the income to comfortably pay off any new debt, and buy items on credit only when you will be better off financially by getting them now as opposed to buying them later with cash -- for example, buying a home instead of spending the same amount of money in rent,or buying equipment for your small business that will increase revenue.

Instead of increasing your overall debt load, focus on lowering the cost of your existing debt, he says. For example, there are some amazing 0% balance-transfer credit card offers available now that, in combination with the new credit card law, can help consumers lower the cost of their existing debt without having to worry about "gotcha" practices, says Papadimitriou.