Jobless rate seen rising, offering Obama no relief

The U.S. unemployment rate probably rose in October as employers stepped up hiring only slightly, underscoring President Barack Obama's vulnerability in next week's presidential election.

Employers likely added 125,000 jobs to their payrolls last month, according to a Reuters survey of economists. That would be up from 114,000 in September, but would fall short of what is needed to quickly cut the jobless rate.

Indeed, economists expect the unemployment rate -- a key focus in the neck-and-neck race for the White House -- to tick up by a tenth of a percentage point to 7.9 percent, reversing part of a surprise drop seen in September.

The Labor Department's closely watched report, which will be released at 8:30 a.m. (1230 GMT) on Friday, will be the last major report card on the economy before Tuesday's presidential election, which pits President Obama against Republican Mitt Romney.

If economists are right, it will show the eighth straight month of lackluster job growth, a worrisome trend that would likely reinforce the Federal Reserve's resolve to keep easy money policies in place until the economy shows more vigor.

"The weakness in overall economic growth momentum has extended into the last quarter of the year," said Millan Mulraine, an economist at TD Securities in New York.

Romney has made the nation's feeble jobs market, which has plagued Obama since he took office in 2009, the centerpiece of his campaign. The latest Reuters/Ipsos daily tracking poll showed Obama and Romney in a dead heat.

Still, the report could provide fodder for both candidates. Some economists have noted an increase in the jobless rate might have a silver lining if it is driven by Americans pouring into the labor market to restart job hunts.

Yet barring a sharp acceleration in hiring, the report will reinforce the idea that a full recovery from the 2007-09 recession remains distant. The jobless rate, which peaked during the recession at 10 percent, remains about 3 percentage points above its pre-recession level.

Whatever the outcome of the jobs report, the political impact of the report will likely be muted as most voters perceptions on the economy are likely firmly fixed by now.

FISCAL CLIFF

Even with a moderate pace of job creation, the U.S. economy faces a real threat of a renewed recession next year.

Without action by lawmakers, the existing legislation will raise taxes and cut spending to the tune of about $600 billion in 2013. That scenario -- known in Washington as the "fiscal cliff" -- could easily cause the economy to contract. Fears of this possibility probably led businesses to hold back on hiring last month.

"The uncertainty around the fiscal cliff has caused companies to just pause," said John Canally, an economist at LPL Financial in Boston.

Europe's debt crisis, which has hit factories around the world, including those in the United States, is also weighing on the U.S. economic recovery.

U.S. manufacturers are seen shedding 4,000 jobs in October, which would be the third straight monthly decline.

With the overall pace of job growth still subdued, average hourly earnings are expected to rise a tepid 0.2 percent. The average workweek is seen holding steady at 34.5 hours.

October's projected payroll additions, if sustained, might be just enough to slowly bring down the unemployment rate.

Nonetheless, the Fed is expected to expand a new bond-buying program at the end of the year to compensate for the end of another stimulus program aimed at driving down borrowing costs.

Persistently weak labor market conditions led the central bank in September to launch a program to buy $40 billion worth of mortgage-backed securities every month until there is a sustained pick up in the labor market.

"The Fed is probably not impressed with the improvement in the job market over the past couple of months," said Ryan Sweet, an economist at Moody's Analytics in West Chester, Pennsylvania.

(Additional reporting by Lucia Mutikani; Editing by Tim Ahmann)