Weak U.S. labor market looms ahead of elections

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Published October 05, 2012

| Reuters

Fears of government austerity likely kept U.S. job gains modest and the unemployment rate elevated in September, an outcome that could weigh on President Barack Obama's re-election bid.

Employers are expected to have added 113,000 jobs to their payrolls last month, according to a Reuters survey of economists. That would be up from 96,000 in August, but it would still fall short of what is needed to cut the jobless rate.

Indeed, economists expect the unemployment rate, a key focus in the race for the White House, to tick up by a tenth of a percentage point to 8.2 percent as Americans come back into the labor force to resume the hunt for work.

The Labor Department's closely watched report, which will be released at 8:30 a.m. on Friday, will be the second last before the November 6 election that pits Obama against Republican Mitt Romney. If economists are on the mark, it would present a seventh straight month of lackluster job growth.

Whether or how much another modest rise in payrolls would hurt Obama, however, is not clear. "If they stay in a slightly positive territory they probably won't change the minds of too many voters," said Matt Jacobsmeier, an assistant political science professor at the University of New Orleans.

A Reuters/Ipsos poll released on Thursday after Wednesday's first presidential debate showed Romney gained ground and is now viewed positively by 51 percent of voters. Obama's favorability rating remained unchanged at 56 percent.

A survey by career network Beyond.com published on Thursday showed working Americans preferred Obama, while their unemployed counterparts favored Romney.

Economists blame the so-called fiscal cliff for the slowdown in hiring, which has left millions of Americans working either part-time or unemployed and too discouraged to look for jobs.

The Congressional Budget Office has warned that a failure by Congress to avoid the automatic tax hikes and government spending cuts that will suck about $600 billion out of the economy next year would knock the economy back into recession.

"Businesses are not hiring people, they want to wait and see how the election evolves and how the political landscape shapes up," said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.

"Everyone has kind of battened down the hatches."

Job growth was strong at the start of the year but began to brake abruptly in March. Over the six months through August, it averaged about 96,670 per month - well below the 125,000 normally needed just to hold the jobless rate steady.

HUGE JOBS DEFICIT

The economy is still about 4.7 million jobs short of where it stood when the 2007-09 recession started. The jobless rate has been stuck above 8 percent for more than three years, the first time this has happened since the Great Depression.

Persistently poor labor market conditions led the Federal Reserve in September to announce a plan to buy $40 billion worth of mortgage-backed securities each month until it sees a sustained turnaround in employment.

The central bank, which also pledged to keep overnight lending rates near zero until at least mid-2015, hopes the purchases drive down long-term borrowing costs and spur the recovery.

The Fed's ultra easy stance has started to free up credit, giving a lift to consumers, economists said. That, in turn, likely helped lift retail hiring in September.

Temporary help jobs, which are often seen as a harbinger for permanent hiring, are also expected to show an improvement after falling in August for the first time since March.

Manufacturing payrolls are expected to have been flat in September, after posting their first drop in almost a year in August, but a sharp jump in automobile sales during the month suggests an upside risk.

Little improvement is seen in construction employment, which has remained subdued even as home builders have been breaking ground on new projects at a slightly faster clip this year.

Government payrolls are expected to have recorded their seventh straight month of declines in September.

With the overall pace of job growth anemic, average hourly earnings are expected to have risen just 0.2 percent last month after being flat in August.

(Reporting by Lucia Mutikani; editing by Tim Ahmann and Andrew Hay)

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