Corrects number of private jobs created in April in 5th paragrap

WASHINGTON, Jun - Nonfarm payrolls likely rose at their fastest pace in nearly 27 years in May as the government ramped up hiring for the census and businesses grew more optimistic about the economy, a Reuters survey showed.

Although temporary jobs for the decennial census will account for more than two-thirds of the projected 513,000 payrolls gain, a fairly solid foundation is now in place for the wounded labor market's recovery, analysts said.

The increase in payrolls would be the largest monthly gain since September 1983 when employers added just over 1 million jobs. It follows March's 290,000 increase and would mark five straight months of job growth after two years of almost uninterrupted losses.

The Labor Department will release its closely watched employment report on Friday at 8:30 a.m. (1230 GMT).

Private employers are expected to have created 190,000 jobs last month. While this would be a slowdown from April's 231,000, it would also be the fifth month of gains.

There is some pent up demand in the labor market. Companies had been reluctant to add to payrolls during the first two-and-half quarters of the recovery. They were waiting until they had more trust in the recovery, which they do now, said Harm Bandholz, chief economist at UniCredit in New York.

The economy has now grown for three straight quarters and the recovery from the worst recession since the Great Depression of the 1930s is broadening out. The expected jump in employment last month likely led to a dip in the unemployment rate to 9.8 percent from 9.9 percent in April.

The jobless rate is a drag on President Barack Obama's popularity and could cost the Democratic Party dearly in November's congressional elections, with voters in an anti-incumbent and anti-Washington mood.

ELEVATED UNEMPLOYMENT

Unemployment will probably remain high through the year as the nearly 8 million people who lost their jobs during the recession seek work.

The firming jobs market may encourage those who dropped out of the labor force to resume their search, which could keep the jobless rate elevated because workers are counted as unemployed only if they are actively looking for work.

Even though the unemployment rate remains high, analysts said the jobs market had sprung back to life, citing strong gains in private sector employment in March and April.

The 174,000 and 231,000 rises in private sector employment, which exclude census hires, in March and April respectively, were the first real signs that this is no longer a jobless recovery, said Paul Dales, a U.S. economist at Capital Economics in Toronto.

Job growth is critical to sustain a rebound in consumer spending, especially now that recovery in Europe is under threat from government spending cuts to bring down huge budget deficits.

The debt crisis, stemming from Greece's fiscal problems, has pummeled global stock markets, but analysts so far see a limited impact on the U.S. economy.

So far Europe has not had an impact on the U.S. economy, apart from weighing on stock prices, said Bandholz.

Employment growth last month was likely broadly based across all categories, though construction payrolls probably dipped. Analysts predicted strong gains in the private service sector after a gauge of non-manufacturing employment expanded for the first time since December 2007.

Financially stressed state and local governments will probably continue to buck the labor market's upward trend.

The average workweek is expected to have been unchanged at 34.1 hours, but analysts are not too concerned as businesses are hiring new workers, instead of adding hours for existing staff.

(Reporting by Lucia Mutikani; Editing by Andrew Hay)

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