U.S. unemployment rate hits 10.2 percent

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By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. unemployment rate unexpectedly jumped to 10.2 percent in October, breaching the politically sensitive double-digit barrier for the first time in 26-1/2 years, even though the pace of job losses slowed.

A Labor Department report showed on Friday that employers cut 190,000 jobs last month, more than the 175,000 markets had expected. Economists had looked for the jobless rate to rise to only 9.9 percent from 9.8 percent the prior month.

The government revised job losses for August and September to show 91,000 fewer jobs lost than previously reported.

U.S. stock index futures turned negative on the data, while government debt prices rose.

"The unemployment rate of 10.2 percent is problematic because it gives a sense of urgency to Washington, D.C. Washington will be looking for any increase in stimulus," said Tom Sowanick, co-president and chief investment officer at Omnivest Group.

President Barack Obama has called job creation priority No. 1, but the scope to take 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 congressional elections in November 2010. This week, Republicans wrested control of two state governorships away from Democrats in races where the weak economy figured prominently.

The labor market is being watched for signs whether the economic recovery that started in the third quarter can be sustained without government support. The economy grew at a 3.5 percent annualized rate in the July-September period, probably ending the most painful U.S. recession in 70 years.

Labor market sluggishness and weak wage growth suggest inflation is unlikely to get out of hand anytime soon, giving the Federal Reserve scope to maintain supportive policies.

The U.S. central bank on Wednesday held overnight interest rates close to zero percent and said it would keep them extraordinarily low as long as excess economic slack and a lack of inflation warning signs prevailed.

"The Fed will stay on hold even longer with less likelihood of giving a concrete answer to when and how to withdraw quantitative easing," said Joseph Trevisani, senior market analyst at FX Solution in Saddler River, New Jersey.

Payrolls have declined for 22 consecutive months now, throwing 7.3 million people out of work since December 2007, when the recession started.

However, the pace of layoffs has slowed sharply from early this year, when nearly three-quarters of a million jobs were lost in January. In October, job losses were 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 in October and goods-producing industries slashed 129,000 positions. Education and health services added 45,000 jobs, while government employment was flat.

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

(Additional reporting by Nick Olivari and Jennifer Ablan in New York; Editing by Andrea Ricci)

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