Upbeat reports on factory orders and jobs did little to ease worries about the world's largest economy. Despite a private sector report showing job losses eased last month and worker productivity is rising, investors remain troubled that stock prices may have risen too far - too fast.
Wall Street remained cautious, one day after the Dow Jones Industrial Average tumbled 186 points.
Despite mostly upbeat news on housing, unemployment and worker productivity, financial markets around the world are concerned that the 50 percent surge in U.S. stock prices since March - has been overly optimistic.
Economist Julia Coronado at BNP Paribas says investors are leery of taking unnecessary risks. "I don't think by any stretch that we are out of the woods. I think the data are consistently saying that the worst is behind us, but the worst was really, really bad."
Prospects for a strong recovery have also been tempered by continuing concerns about consumer spending. Despite an uptick in auto sales due to the government's "Cash for Clunkers" program, new data suggests those with disposable income are hanging onto their money.
And the banking sector, which has received $500 billion in government bailouts, continues to falter.
More than 400 U.S. banks are now in danger of failing.
And among the big losers are people seeking loans.
"You have to be a very good credit risk. I mean if you want a mortgage loan as an individual you have to have a very large downpayment, you have to have very good credit scores, you have to have a good solid job and you have to prove your income. So you need to be a very good credit risk," said economist Mark Zandi.
Compounding the prospects for recovery is unemployment. Although a new private sector report shows job losses declined again in August, analysts predict unemployment will peak above ten percent by the end of the year.
Based on those projections, Coronado says a quick recovery is unlikely. "We still have a lot of damage to the system, that's going to take a while to heal. You can think of it as the difference between spraining your ankle and breaking your ankle. It's going to take a while to heal this," she said.
Investors hope to get a clearer picture of the state of the U.S. economy on Friday, when the Labor Department releases its latest unemployment report.