President Obama said tonight that congressional leaders have made progress on a new budget deal, but added that they need to reach a final agreement by Friday morning or face the prospect of a government shutdown that would hurt the economy.

"I'm not yet prepared to express wild optimism, but I think we are further along today than we were yesterday," Obama said after an hour-long meeting with House Speaker John Boehner, R-Ohio, and Senate Majority Leader Harry Reid, D-Nevada.

Obama also canceled a planned trip to Indiana on Friday, telling reporters at the White House that he wants to announce a final agreement -- but he added that nothing is certain.

"I expect an answer in the morning," Obama said.

Boehner and Reid-- who had also met with Obama earlier Thursday -- issued a joint statement tonight saying, "we have narrowed the issues, however, we have not yet reached an agreement. We will continue to work through the night to attempt to resolve our remaining differences."

Obama said a shutdown could wreck recovery of the economy, and that "for us to go backwards because Washington couldn't get its act together is unacceptable."

The president, Boehner, and Reid did not cite specifics, but are trying to resolve disputes over how many spending cuts to include in a new budget, and whether it should include Republican proposals on abortion and environmental policies.

This afternoon's negotiating session came after Reid and Boehner said they were less optimistic about an agreement than they had been after an 84-minute get-together with Obama on Wednesday night.

Reid and other Democrats said the problem is Republican insistence on including anti-abortion and anti-environmental regulation measures into a final budget bill. "The only thing holding up an agreement is ideology," Reid said this morning in a Senate speech, according to our OnPolitics blog.

Boehner, the leader of the House Republicans, said there is no deal because Democrats don't want to cut enough spending to address the nation's debt problem. "We were closer to a number last night than we were this morning," said Boehner before the White House meeting, reports OnPolitics.

The parties must also figure out how to get a final product through a Republican House and a Democratic Senate before the continuing resolution that is currently funding the government expires at midnight Friday.

Without some kind of deal by midnight Friday, the federal government would shut down operations that are not deemed essential.

"At a time when the economy is still coming out of an extraordinarily deep recession, it would be inexcusable -- given the relatively narrow differences when it comes to numbers between the two parties -- that we can't get this done," Obama said last night at the White House.

On another front in the fast-moving negotiations, the Republican-run House approved a one-week extension of government funding as negotiators continue to discuss a long-term deal; the Boehner plan would also fund the military for the remainder of the fiscal year, which ends Sept. 30.

The White House is threatening to veto any temporary extension, saying there have been too many short-term bills and a full budget is needed through Sept. 30.

In any event, the Boehner one-week proposal is not expected to pass the Democratic Senate.

When it comes to actual budget cuts, the Democrats are talking about $33 billion; the Republicans are in the area of up to $61 billion. (You may hear Obama and the Democrats talk about $73 billion, but that includes proposed spending that hasn't been approved.)

Most of today's problems revolve around Republican proposals that a budget bill include other items, such efforts to eliminate funding for Planned Parenthood and National Public Radio, and to restrict the enforcement powers of the Environmental Protection Agency.

After last night's session with Obama, both Boehner and Reid expressed hope that a shutdown can be avoided.

"We had a productive conversation and made good progress toward an agreement," Reid said. "I am hopeful that we will be able to announce a compromise agreement soon."

Boehner, standing beside Reid in the White House driveway, said: "There's an intent on both sides to continue to work together to try to resolve this ... no one wants the government to shut down."

In the White House press room last night, Obama said, "I remain confident that if we're serious about getting something done we should be able to complete a deal and get it passed and avert a shutdown."

"But," he added, "it's going to require a sufficient sense of urgency from all parties involved."