Employment likely contracted for the first time this year in June as thousands of temporary jobs for census workers ended, though private-sector hiring probably picked up, according to a Reuters survey.

The government's closely followed employment report due at 8:30 a.m. on Friday could shed more light on the strength of the economy after a raft of data pointed to a loss of momentum, fanning fears of a double-dip recession.

Nonfarm payrolls are forecast to have dropped by 110,000 last month after increasing 431,000 in May on a surge in census hiring. Those temporary workers -- 411,000 hired in May alone -- are now being let go.

But private hiring, considered a better measure of labor market health, likely rose by 112,000 after May's 41,000 increase, the poll found. However, a report on Wednesday showing private employers added only 13,000 jobs last month is seen posing a downside risk to that forecast.

The labor market is definitely losing steam. I expect private payrolls to rise only fifty thousand, said Sung Won Sohn, an economics professor at California State University in the Channel Islands.

At this stage of the recovery this is nothing. We need a couple hundred thousand a month to grow the economy, he said. The best thing we can say is the labor market has hit the bottom, it's not getting any worse, but there really isn't any meaningful recovery.

Public unhappiness with the economy is eroding President Barack Obama's popularity. Obama, who has called job creation his No. 1 priority, has tried to put the blame on policies of the previous administration.

With voters in an anti-Washington, anti-incumbent mood, failure to put back to work the more than 8 million Americans who lost jobs during the recession could cost the Democratic Party dearly in the November mid-term elections.


The economy has expanded for three straight quarters following the longest and deepest recession since the 1930s, but growth has not been vigorous enough to convince businesses to step up hiring.

With unemployment stubbornly high, household spending has turned sluggish in recent months, threatening to create a vicious cycle that stock market investors and some analysts worry could tip the economy back into recession.

We are in a difficult situation. I don't think there is political will to have another stimulus program and even if we did I am not sure people feel it would be that effective, said Stephen Bronars, a senior economist at Welch Consulting in Washington.

The Federal Reserve is also in a bind. It has held benchmark overnight interest rates close to zero since December 2008 and has pumped more than $1 trillion into the economy. Fed officials believe a sustainable recovery has taken hold, but are watching cautiously.

According to Census Bureau data, there were 344,157 temporary census workers during the survey week for the employment report. That compares to 573,779 in May.

The loss of the temporary census jobs, combined with the anticipated return of some previously discouraged workers back into the labor force, is seen lifting the jobless rate to 9.8 percent from 9.7 percent in May.

Analysts said uncertainty in Europe, where huge budget deficits are forcing governments to slash public spending, was contributing to the reluctance by some U.S. businesses to hire. Layoffs at cash-strapped U.S. state and local governments is also seen weighing on employment.

Slower export growth to Europe as economies there slow is expected to have only a limited impact on the U.S. economy, but analysts said falling share prices could crimp spending.

With businesses wary of hiring, economists look for a further rise in the length of the average workweek before employment perks up. However, for June they see the work week holding steady at 34.2 hours.

(Reporting by Lucia Mutikani, Editing by Chizu Nomiyama)