PREVIEW-US nonfarm payrolls seen +60,000 in October

WHAT: U.S. employment report for October

WHEN: Friday, Nov. 5 at 08:30 a.m. (1230 GMT)

REUTERS FORECASTS: NONFARM PAYROLLS PRIVATE PAYROLLS

Median +60,000 +75,000

Minimum -2,000 +15,000

Maximum +120,000 +150,000

Prior -95,000 +64,000

——-

UNEMPLOYMENT RATE AVG WORK WEEK

Median 9.6 pct 34.2 hrs

Minimum 9.5 pct 34.2 hrs

Maximum 9.7 pct 34.3 hrs

Prior 9.6 pct 34.2 hrs

——

FACTORS TO WATCH

U.S. employment probably increased in October for the first
time since May, but too feebly to signal a meaningful shift in
the almost stagnant labor market. That should leave the
unemployment rate at an elevated 9.6 percent in October.

The closely watched employment report for October will be
released on Friday. It will follow the Federal Reserve’s
meeting on Tuesday and Wednesday at which policymakers are
expected to announce a new round of bond purchases to push
interest rates down further in an effort to invigorate a
lackluster economic recovery.

The report could provide fresh clues on the U.S. central
bank’s future course of action as it tries to stimulate
employment and prevent the current low inflation environment
from spiraling into a crippling phase of deflation.

The Fed, which cut overnight interest rates to near zero in
December 2008, has already injected $1.7 trillion into the
economy by purchasing mortgage-related and government bonds.

Initial claims for state unemployment benefits were fairly
steady during the month, but they have been too volatile to be
a reliable predictor for nonfarm payrolls.

Government employment likely fell again in October, weighed
down by continued layoffs by state and local governments
grappling with tight budgets. In September, state and local
governments purged 83,000 workers — the bulk of them
teachers.

Economists at JPMorgan, however, noted that when
education-related payrolls drop sharply in September, they tend
to rebound in October because of movements in the seasonal
factors around this time of the year. But MF Global’s Jim
O’Sullivan cautioned the budget pressures raised the potential
for below-normal seasonal hiring by state and local governments
again in October.

A small drag on federal hiring was expected from the
departure of the few remaining temporary workers hired to
conduct the 2010 census.

Manufacturing payrolls likely rebounded somewhat after
September’s 6,000 decline as many regional factory surveys, as
well the national Institute for Supply Management survey,
showed gains in employment.

Construction payrolls probably declined again in October, a
sign of the deep problems afflicting the housing market.

Employment in the private service-providing sector probably
held steady last month. Temporary help services — seen as a
harbinger of permanent hiring — will also be watched;
employment gains in this category have slowed after showing
strength earlier this year.

The length of the work week could also yield some clues on
the labor market’s prospects. The average work week has barely
moved this year and is seen unchanged at 34.2 hours for a
fourth straight month. Employers tend to increase hours for the
existing workforce before hiring new workers.

Modest gains in hourly earnings are expected in October,
which could support household consumption. Consumer spending,
which accounts for more than two third of U.S. economic
activity, accelerated in the third quarter, giving growth a
modest lift.

MARKET IMPACT

U.S. financial markets have largely priced in further
monetary policy from the Fed at the end of its two-day meeting
this week. Investors will watch Friday’s employment report for
indications whether the central bank will need to do more to
aid the economy.

For U.S. Treasuries, the risks may be skewed toward a hefty
sell-off and a sizable jump in yields if the addition to
payrolls is markedly larger than forecast.

Price support for benchmark 10-year Treasury notes
(US10YT=RR: ) was seen in the yield range of 2.80 percent to 2.85
percent, according to William O’Donnell, head of U.S. Treasury
strategy at RBS Securities in Stamford, Connecticut. Benchmark
yields were hovering around 2.63 percent early this week.

On the other hand, any unexpected contraction in payrolls
could spur a rush to lower-risk U.S. government debt, with
O’Donnell pegging price resistance at 2.58 percent and then
2.38 percent.

A weak report could hurt the U.S. dollar as it would imply
further easing from the Fed, while unexpected strength could
boost the greenback and stocks.
(Polling by Bangalore Unit)
(Reporting by Lucia Mutikani and Chris Reese; Editing by
Andrew Hay) (([email protected]; Tel: 202 898
8315; Reuters messaging:
[email protected]))

PREVIEW-US nonfarm payrolls seen +60,000 in October