A separate report on Midwest businesses showed a jump in activity in October and an encouraging lift in employment to its highest level since January 2000, bolstering optimism that the economic recovery is finally on solid ground.

With the economy coming off its strongest growth in nearly two decades, the University of Michigan said its index of consumer sentiment for October rose to 89.6 from 87.7, the first increase in three months and in line with forecasts.

Better economic news and tantalizing signs of job growth seem to have lifted consumers' spirits.

"Consumers are going to slow down because you can't really maintain the pace you saw in the third quarter, but they're not likely to disappear from the ballgame," said Lehman Brothers economist Drew Matus.

"There are indications that a sustainable recovery is underway. There's going to be good growth for several quarters," he said.

US Treasury prices edged higher after the economic reports and the dollar strengthened on the jobs reading. The main U.S. stock market indexes closed steady, with the broad S&P 500 index finishing up 3.77 at 1,050.71.

Separately, the National Association of Purchasing Management-Chicago business barometer rose to 55.0 from an unexpectedly weak 51.2 in September. The figure was close to forecasts but included an unexpected surge in the employment component to 53.1 from 45.3.

That raised hopes the national payrolls report for October, due next week, could show another moderate gain after September rose for the first time in eight months. Preliminary forecasts are for a rise of 55,000, after a gain of 57,000 in September.

A top White House economist said he expected U.S. job growth to ramp up over the next few months.

"What is still missing from this recovery is robust job creation, but we expect that to arrive in the coming months," Gregory Mankiw, chairman of the Council of Economic Advisers, said in an on-line chat session on the White House Web site.

Even though the economy has gathered steam in recent months, the labor market has lagged. More than 2.7 million jobs have been lost in the past three years.

And the Federal Reserve has said plainly it has no intention of raising interest rates until it is sure the economy is firing on all cylinders, and the risk of inflation falling has been removed. This week the Fed voted to keep its short-term interest rate target at a 45-year low of 1.0 percent.

The U.S. economy posted its strongest growth since 1984 in the third quarter, at an annual rate of 7.2 percent, fueled by consumer and business spending, the government said on Thursday. But as the stimulus of tax cuts fades and jobs remain scarce, some analysts worry about how the economy will fare next year.