U.S. job purge likely halted, jobless rate seen up

A Reuters survey of 84 economists on Thursday forecast nonfarm payrolls would be flat in December after dropping by 11,000 in November, far fewer than in previous months.

The unemployment rate, however, was expected to have edged up to 10.1 percent from 10 percent in November as a brightening labor market picture drove discouraged jobless Americans to start looking anew for work.

The jobless rate rose to a 26-1/2 year high of 10.2 percent in October and analysts believe it will not exceed this level much in coming months. The Labor Department will release the employment report, closely watched by financial market and politicians alike, at 8:30 a.m. EST.

A flat payrolls number will imply steady improvement in the jobs market, climbing toward a stable unemployment rate maybe in early 2010, said Mike Englund, chief economist at Action Economics in Boulder, Colorado.

The Reuters poll found some analysts believe payrolls grew by as much as 100,000 last month, while others saw a decline of 80,000. Based on the 20 most accurate forecasters in Reuters polls since April, payrolls were seen shrinking by 25,000.

Some economists think Friday's payrolls report could carry further signs of improvement in the labor market, with expectations that November's job losses could be revised to show a gain.

The government had revised figures for the prior two months to show job losses were not as steep as initially thought.

High unemployment is one of the toughest domestic challenges facing Obama. The administration's success in getting people back to work will shape prospects for Obama's own political future.

Obama's popularity has steadily fallen, knocking his approval ratings down to around 50 percent. This could dim the election prospects for his Democratic Party in the November congressional elections.

With most labor market indicators for December fairly positive, chances are high for the first growth in jobs since the economy at the end of 2007 slipped into the worst recession in 70 years; the economy resumed growth in the third quarter of 2009.

Any rise in jobs will be welcome after 24 straight months of decline. We hope and expect to see bigger employment gains in the coming months to make more of an impact in knocking down the unemployment rate, said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.

Job growth, even on a small scale, would be a boost to consumer sentiment and support consumer spending, which would help make the economic recovery sustainable even when government stimulus fades.

The state of the job market is among the key factors that will determine the timing of the Federal Reserve's first interest rate increase since cutting benchmark overnight borrowing costs to near zero percent in December 2008.

The U.S. central bank has vowed to keep rates low for an extended period.

The improvement in labor market conditions in December is likely to be broader than in recent months, with possible payroll gains in the services sector, the professional and business services, and education and health services.

Job losses in the manufacturing sector probably moderated last month, but weather-related problems likely kept those in the construction industry elevated. Companies are expected to have added more temporary workers last month, which will be taken as sign that they are close to hire permanent staff.

The average work week, a good predictor of when firms will resume hiring, likely held steady at 33.2 hours in December. The average work week lengthened in November for first time since February.

(Additional reporting by Alister Bull; Editing by Leslie Adler)