Jobless rate hits 26-1/2 year high of 10.2 percent

The U.S. jobless rate unexpectedly jumped to a 26-1/2-year high of 10.2 percent last month, adding to pressure on the Obama administration to do more to tackle unemployment even as signs of recovery mount.

The Labor Department said Friday that employers cut 190,000 jobs in October, more than the 175,000 markets had expected but fewer than the 219,000 lost in September.

Taking some of the sting out of the report, job losses for August and September were revised to show 91,000 fewer jobs were lost than previously reported.

While that hinted at some improvement, economists had looked for the jobless rate to rise to 9.9 percent from September's 9.8 percent. A wider gauge of labor-market slack that includes unemployed Americans who have given up looking for work hit a record 17.5 percent.

Speaking at the White House, President Barack Obama said the administration was considering infrastructure investments and business tax cuts to aid the economy's recovery.

I can promise you that I won't let up until the Americans who want to find work can find work and all Americans can earn enough to raise their families and keep their businesses open, he said.

The data initially pushed U.S. stocks down, but they erased losses to trade roughly flat at midday. U.S. government bond prices rose as traders saw the data suggesting a prolonged period of low interest rates.

Unfortunately, the problem is becoming deeper and more protracted, Mohamed El-Erian, chief executive of bond giant Pacific Investment Management told Reuters.

It's not just the increase in the headline number, he said. It's also about the longer-term nature of unemployment, the increase in underemployment, and the prospect for only a very gradual recovery.

While Obama sees job creation as his top priority, the scope for further steps to lift the economy is limited by record budget deficits.

Mounting unemployment could pose problems for the Democrats who control Congress as they head into elections in November 2010. This week, Republicans wrested control of two state governorships away from Democrats in races where the weak economy figured prominently.

President Obama promised jobs during his campaign for president, and the elections in Virginia and New Jersey on Tuesday were a clear referendum on his failure to deliver on this promise, Republican National Committee Chairman Michael Steele said in a statement reacting to the report.

ECONOMY GROWING, BUT LABOR MARKET LAGS

The U.S. economy grew at a 3.5 percent annual rate in the third quarter, likely ending the most painful recession in 70 years, but the jobs reports suggested employers are wary of the prospects for a strong, sustained recovery.

There was also dismal news on the labor front in neighboring Canada, where the economy unexpectedly lost 43,200 jobs last month after two months of gains, pushing the jobless rate up to 8.6 percent from 8.4 percent.

Wednesday, the U.S. Federal Reserve held overnight interest rates close to zero and said it expected to keep them low for an extended period.

Rate futures prices Friday showed the implied chances of a rate hike by mid-2010 slipped to about 66 percent from 84 percent late Thursday.

I don't know how in the heck the Fed could justify tightening policy with the unemployment rate over 10 percent unless we have an imminent inflation danger, said Keith Hembre, chief economist at First American Funds in Minneapolis.

The U.S. Labor Department conducts two separate surveys.

Economists generally place more faith in the survey of employers, which found the loss of 190,000 jobs.

The unemployment rate, however, is based on a smaller household survey. That survey showed 589,000 jobs were lost, while few Americans left the labor force, leading to the big jump in the jobless rate.

Employer payrolls have declined for 22 consecutive months now and 7.3 million people have lost work since December 2007, when the recession started. However, the pace of layoffs has slowed sharply from early this year.

Job losses in October were widespread across almost all sectors, with education and health services and professional and business services bucking the trend.

Manufacturing employment fell 61,000 last month, while construction industries payrolls dropped 62,000. The service-providing sector cut 61,000 workers.

Offering a small glimmer of hope, temporary help jobs increased by 34,000. It was the biggest gain since the economy fell into recession and suggested companies needed extra hands even if they were not prepared to hire permanently.

The average workweek, which gives clues on when firms will start hiring, was steady at 33 hours. Average hourly earnings rose to $18.72 from $18.67 in September.

A separate report from the Commerce Department showed wholesalers reduced their stocks of unsold goods for the 13th straight month in September. Economists expect a rebuilding of depleted inventories to help support recovery.

(Additional reporting by Lisa Lambert and Alister Bull in Washington, Richard Leong and Jennifer Ablan in New York; Editing by Andrea Ricci)