The complexity of the summit’s potential fixes for the euro zone’s sovereign debt and banking seizure has been debated in the finest of details across news agencies, newspapers and the web on a minute-by-minute basis for the past several weeks.

And for some commentators the outcome is now binary. A solution that ticks all the boxes would deliver a surge of relief to markets, banking and global economic confidence at large. Failure would spell disaster, the end of the euro in its current form, double-dip world recession or even depression.

Complicating the picture, as ever, is the fact so many views are tinged with some political tilt or bias on the issue.

Those intent on saving the euro at all costs via deeper European integration now talk in apocalyptic terms, in part to prod governments and electorates into taking what they see as the only sensible option of deeper cross-border links.

The euro-skeptic lobby is equally vociferous in deriding a structure they always felt was doomed to fail, reinforcing their long-held political arguments on economic sovereignty and wariness of supranational integration.

For many money managers, the more prosaic reality is probably somewhere in between and something that just “works.” And despite some of the most sophisticated financial analysis money can buy, many are just bamboozled by the politics.

CONFUSED, FROZEN, LOOKING FOR ANSWERS

“Our investors are confused,” Laurence Fink, chief executive of the world’s largest money manager Blackrock, said late Wednesday. “We have many clients worldwide who are confused, frozen, looking for answers.”

If European governments acted with a sensible long-term view, Fink added, investors “would rush right back into the marketplace.”

But it’s the variety of ideas surrounding a “sensible long-term view” that throws us back into acres of grey area.

All of which might explain why there has been little or no net move in the world’s benchmark financial prices and indices for almost two months — plenty of ebb and flow and volatility, but no real direction since August.

What is more, the fog surrounding the euro fine print means more and more money managers are hoping the recent stabilization of global growth can by itself hold markets together even in the face of European “muddle through.”

Data out over recent weeks has shown a jump of more than one percent in US retail sales and a 15 percent jump in U.S. housing starts in September, third-quarter Chinese national output growth still in excess of 9 percent, record UK exports in August and a steady Q3 corporate earnings season so far.

On Thursday, a key gauge of U.S. business sentiment from Philadelphia’s Federal Reserve jumped to a 6-month high.

For equity strategists at Deutsche Bank, European crisis management may well manage to lower risk around the world and to cut global cost of capital. But they figure that the longer-term price for Europe will be lower growth too and this will be a slow burner for all economies.

“Beyond the outcome of this weekend, we think that the European crisis is approaching an end. While the focus is on estimating the costs, the market believes that a European recession and dilution to banks’ shareholders is a small price to pay compared to the alternative.”

Yet, not all agree. Investors still fear some non-specific disaster trigger in European government debt funding to be the biggest leftfield shock to their portfolios ahead.

In their latest monthly poll of 286 funds with more than $700 billion of assets under management, Bank of America Merrill Lynch showed on Wednesday that over 60 percent still saw the biggest “tail risk” to be in European sovereign debt — although that figure was closer to 70 percent last month.

In many ways, the job of the summit is to cut that fear.

ON THE TABLE

So, a deal of some sort now seems almost certain. The history of the EU suggests it will have some plan and that is the running assumption in financial markets. This at least takes the cliff-hangar aspect away from Monday markets.

The details then hinge on three key areas. First is on ways to leverage the zone’s 440 billion euro rescue fund to give it the firepower to buy sovereign debts on primary or secondary markets and be available to recapitalize weak banks hit by writedowns on any restructured government bonds.

The second is a credibly deep restructuring and write-off of Greek debts to ensure future sustainability. The third area involves bolstering euro institutions to insulate the rest of the bloc’s borrowers going forward, possibly even the prospect of joint bonds or a single finance ministry in the future.

As is typical, markets are seeking to simplify the instant “buy/sell” decision by focusing on headline numbers.

Most reckon the capacity of the European Financial Stability Fund needs expanding to between 1 and 2 trillion euros, involving a possible bank recapitalization of at least 100 billion euros as well as significant bond buying and an agreed private sector haircut on Greek debts of around 50 percent.

Beyond that — there is a blizzard of nuances on practicalities and efficacy as well as legal and constitutional

minefields and loopholes.

Focusing on market behavior before and after previous “do or die” weekends over the past two years, Barclays analysts Paul Robinson and Yuki Sakasai showed global equities and risk assets closely correlated with the euro and tended to weaken into the event. But they also cautioned against assuming easy correlations lasting for long.

“The crisis has been so complicated and the “small print” so important that the initial response of assets is not a very reliable guide to the response over the following period,” they told clients, adding that global risk may decline on a deal but European growth may subsequently weaken.

And if summit outcome disappoints, many may simply turn their eyes to the next major summit — the Group of 20 summit in Cannes 10 on November 3-4.

(by Mike Dolan; editing by Ron Askew)

(Muchfinance) – Uncertainty is rampant in financial markets and businesses, and for the first time economists can measure how big a bite it takes out of growth.

The models show that not only political uncertainty hurts output. So too can Federal Reserve policy.

When Fed interest rates are near zero and most designed to support growth, uncertainty can get further heightened making it even more damaging than in normal circumstances with higher drops in output. The knowledge that the Fed cannot cut rates further feeds uncertainty, and it also can worsen inflation.

The projections by a handful of leading economists show that the market upheaval unleashed by August’s U.S. debt debacle has not yet worked its way through the U.S. economy.

It will rob an estimated 1.75 percentage points from output with the full impact hitting in the first quarter of 2012, heightening the risks of recession next year.

The findings are laid out in two new papers from economists at Boston College and in a working paper issued by the Philadelphia Federal Reserve Bank that build upon recent work at Stanford University.

The studies come just as slow growth is dogging policymakers and the Fed is under attack for its ultra-loose monetary stance.

They are likely to fuel arguments about what the proper role of the Federal Reserve should be and could provide fodder to U.S. lawmakers who argue the central bank should focus solely on fighting inflation.

The studies also underscore the risks from both sides of the Atlantic as policymakers in Europe and the United States grapple with resolving deep sovereign debt problems.

At a minimum, the models estimate that elevated levels of uncertainty rob 0.3-0.5 percentage points from output.

CANCELED PLANS

Business people and economists know well how investment and spending get put on hold when uncertainty rises.

Take Rose Corona, owner of Corona Ranch, a farm and feed store in Temecula, Calif.

Over the past two years, she has canceled plans to build a $70,000 hay barn, postponed replacing a $20,000 generator to pump well water and is waiting before she fences her grapefruit groves. She also laid off nine of her 35 employees.

Her annual revenues have fallen below $5 million since the 2008-2009 recession and her costs have soared. Now she is concerned by talk in Washington about regulating dust stirred up by plowing and about higher taxes for the rich. This double whammy of weak demand and uncertainty over business conditions is restraining her investment plans.

“If I have to pay more taxes, is it going to allow me to hire more people? You don’t pull up the weak by pulling down the strong. We all need to help but there is only so much blood I can give,” Corona said.

Now economists have a way to model the impact.

Stanford University economist Nicholas Bloom used the Chicago Board Options Exchange VIX Index of stock market volatility as a proxy for uncertainty. When it spikes above 40, output growth falls by about 2 percentage points in the next six months and takes about nine months to recover, he found.

Building on his work, Boston College economists Susanto Basu and Brent Bundick built a model that shows that when uncertainty about future demand as measured by the VIX rises by one standard deviation, it reduces growth by 0.3 percentage points over the following year.

When Fed rates are very low, the uncertainty impact is amplified by 50 percent, they found.

After the collapse of Lehman Brothers, for instance, a shock that caused massive financial upheaval worldwide and led the Fed to slash interest rates toward zero, their model found uncertainty contributed 2.5 percentage points to the steep decline in Gross Domestic Product over a one year period.

“High uncertainty creates low demand by inducing households and firms to cut back on spending in order to build up nest eggs for possible bad times in the future, and low demand in turn reduces growth and employment,” Basu said.

BUDGET SHOCKS

A model developed by economists at the University of Pennsylvania, Duke University, and the Phillie Fed came to similar conclusions, although it focused explicitly on fiscal uncertainty.

The researchers looked at four factors — uncertainty over the path of government spending, labor tax, capital tax and consumption tax — and found that when all four are elevated by two standard deviation points, output is depressed by 0.5 percentage points.

The impact of this fiscal volatility shock is equivalent to the Fed raising interest rates by 25 basis points, but it lasts about twice as long with the steepest decline in output seen three quarters after the shock, the researchers said.

They also found like Basu that when monetary policy is extremely loose, it magnifies the impact of fiscal uncertainty.

Additionally, businesses tend to raise prices in anticipation of higher marginal costs and to secure their profits against declining sales, causing inflation even as output is falling.

The researchers conclude that in response to fiscal uncertainty, the Fed would do better to concentrate more on inflation than on job growth.”

“We find, interestingly, that a stronger focus of monetary policy on inflation, rather than on employment, alleviates the negative outcomes of fiscal volatility shocks on economic activity,” they said.

Some U.S. lawmakers are proposing limiting the Fed’s mandate to inflation-fighting only.

Basu said he was surprised that his model showed a negative growth impact when Fed rates are near zero, and it suggests that a combination of fiscal and monetary policy is needed to jump start the economy.

“It gives a lot of support to those who say that zero-bound interest rates are a major constraint on Fed policy, and we need to use fiscal policy to further support growth,” he said.

(To read the papers:

Federal Reserve Bank of Philadelphia working paper series, “Fiscal Volatility Shocks and Economic Activity” by Jesus Fernandez-Villaverde, University of Pennsylvania; Juan Rubio-Ramirez, Duke University; Pablo Guerron-Quintana and Keith Kuester, Philadelphia Fed, double-click: here

Boston College paper: “Uncertainty Shocks in a Model of Effective Demand” by Susanto Basu and Brent Bundick: here )

The Internal Revenue Service mishandled claims for the education tax expense credit that was a key part of President Barack Obama’s 2009 economic stimulus bill, said the Treasury Inspector General for Tax Administration (TIGTA).

“The IRS does not have effective processes to identify taxpayers who claim erroneous education credits,” said Russell George, head of the government’s IRS watchdog unit.

“If not addressed, this could result in up to $12.8 billion in potentially erroneous refunds over four years,” he added.

The IRS said that it “strongly disputes the findings” of the TIGTA report, which it called “flawed and superficial.”

Still, the IRS acknowledged it can do more to determine a tax credit recipient’s eligibility.

The agency said it will revise reporting forms to ask for more information and that it is looking at ways to use Department of Education data to verify claims.

The IRS watchdog said most of the erroneous beneficiaries had no documents to prove they were in college; others may not have been in the classroom long enough to qualify or were graduate students; while still others lacked valid Social Security numbers.

“The IRS doesn’t know who a student is” and there is little third-party verification for a lot of college enrollment claims, said Elaine Maag, senior research associate at the Tax Policy Center, a think tank.

CREDIT WIDENED

The 2009 Obama administration stimulus built on the existing education tax credit. The expanded credit was later extended to include 2011 and 2012 tax returns.

The law increased the education tax credit’s maximum amount to $2,500 from $1,800 a year. Up to 40 percent of the tax credit was refundable for low-income households with minimal tax exposure, meaning qualifying taxpayers could get up to $1,000 in cash.

The bulk of the TIGTA findings can be attributed to a mismatch between individual tax returns and forms submitted by colleges, the IRS said.

The incomplete data “does not in and of itself mean the taxpayer is ineligible for the credit,” IRS said.

It is “unfair” for TIGTA to say the tax credits were erroneously offered when the data do not correlate, IRS said.

The TIGTA findings may be attributable to a calendar variance, Maag said.

Conceivably, a student could pay tuition and claim the tax credit in December for an upcoming semester starting in January, while the college may not report that student as enrolled until the semester begins.

Therefore, the individual’s form and the college’s form fall in different tax years. “It’s very difficult to align data from the two sources,” Maag said.

(Reporting by Kevin Drawbaugh and Patrick Temple-West; Editing by Andrew Hay)

The state is trying to determine whether the bank and Countrywide Financial had sold the securities to investors under false pretenses, the paper reported, citing a person familiar with the matter.

Bank of America bought Countrywide in 2008, leaving itself with billions in losses from soured loans and lawsuits.

The subpoenas come as state attorneys general and federal officials are negotiating a broad mortgage settlement with Bank of America and other major lenders. California reportedly walked away from those talks two weeks ago, although it is possible the state could still sign onto an agreement.

Bank of America declined to comment to Reuters.

The company’s shares were down 2.8 percent at $6.22 in morning trading.

(Reporting by Rick Rothacker in Charlotte, North Carolina, editing by Gerald E. McCormick and Lisa Von Ahn)

The bill paves the way for the governor to declare a state of fiscal emergency that leads to a recovery plan for Harrisburg, which filed for bankruptcy last week.

Harrisburg, a city of about 50,000, is struggling to pay for essential services as well as about $300 million in debt that funded an incinerator project that failed to generate expected cash.

The Harrisburg City Council voted 4-3 on October 11 to file for a Chapter 9 municipal bankruptcy as a way of resolving a massive debt crisis brought on by the funding of an incinerator that hasn’t generated enough cash.

The action immediately generated conflict between the City Council and the mayor, Linda Thompson, the state legislature, and the governor, who dispute the legality of the Council’s action in filing for bankruptcy.

A U.S. bankruptcy judge set a November 23 hearing date on the legality of the bankruptcy.

Mark Schwartz, a lawyer hired by the City Council to handle the Chapter 9 bankruptcy case, called the governor’s signing of the takeover act “absolutely perverse.”

“It’s too little, too late,” he said in a telephone interview on Thursday, dismissing the new law as “clearly unconstitutional.”

Schwartz added that the legislation really didn’t do anything since the governor “must now get approval from the bankruptcy court” to take over the city.

Governor Corbett signed the bill in a private ceremony, according to the governor’s spokeswoman, Kelli Roberts.

“The bill signed into law today will help to enforce Act 47 when municipalities fail to adopt a fiscal recovery plan, making it clear that if there is a failure to act, the state will intervene,” Corbett said in a statement.

Under the law, the governor can declare a fiscal emergency after it is determined the city is insolvent or near insolvency, unable to provide vital services and has not adopted a fiscal recovery plan.

“I remain a strong proponent for municipal governments tackling their own problems and coming together to develop a fiscal recovery plan when necessary,” Corbett said. “But when that fails to happen, the state has to take action to ensure public safety.”

When a fiscal emergency is declared, the State Department of Community and Economic Development Secretary is granted powers to develop an Emergency Action Plan to coordinate essential services. These services include pension and debt payments.

The governor can then petition the state court for the city to be placed into receivership. The receiver will have 30 days to develop a fiscal recovery plan that is submitted to the court. Once approved, the receiver can implement the plan to take control of the municipality’s finances relating to the plan.

Throughout the process, if the city adopts and implements an acceptable fiscal recovery plan, a takeover is averted.

Mayor Thompson said the city will comply with the law. Thompson opposed the bankruptcy filing.

The mayor said in a statement that she will use the current financial recovery plan as the starting point for any discussions, saying implementation of some version of the plan is preferable to entering into receivership or bankruptcy.

“If we don’t attempt to solve our own problems, the alternatives will be far worse,” Thompson said.

A legislative panel estimated the cost of placing Harrisburg into receivership would be between $2.15 million and $2.55 million in the first year. The costs would be about $1 million for the state and between $1.15 million to $1.55 million for Harrisburg.

“This is all process and no money,” Schwartz said. “There’s not 10 cents for Harrisburg.”

The troubled incinerator is owned by the Harrisburg Authority, a separate municipal entity, but the city and the surrounding Dauphin County guarantee much of that debt.

Twenty years ago, there was a similar conflict between Bridgeport, Connecticut, and its state government when the city chose to file for bankruptcy to deal with sinking revenue and escalating demand for services fueled by a recession.

Connecticut objected to the move and a judge subsequently ruled Bridgeport was not insolvent and therefore did not meet technical requirements for filing under Chapter 9.

(Reporting by Chip Barnett in New York; Additional reporting by Karen Pierog in Chicago; Editing by James Dalgleish)

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)