By Lucia Mutikani
WASHINGTON (Reuters) - The economy probably added no jobs in September as shrinking government payrolls offset modest gains in private hiring, an outcome that would cement expectations of further Federal Reserve action to spur the recovery.
The government is expected to report on Friday that private employers added 75,000 jobs in September after an increase of 67,000 in August, according to a Reuters survey. The report is due at 8:30 a.m. EDT.
There is a risk, however, that overall nonfarm payrolls fell for a fourth straight month after an independent survey this week showed a contraction in private jobs in September.
Government employment is expected to be depressed by the termination of more temporary jobs for the decennial census and layoffs at cash-strapped local and state governments.
In the wake of dovish speeches by senior Fed officials, including Chairman Ben Bernanke, analysts said it was now almost certain that the U.S. central bank would launch a second round of asset purchases -- with many expecting a move in November -- even if the jobs report surprised on the upside.
"They may delay it till December, but the odds favor we get something. It might not be as much as the market wants, because the economy might be doing better," said Michael Strauss chief economist at Commonfund in Wilton, Connecticut.
Expectations that the Fed, which has already pumped $1.7 trillion into the economy by buying mortgage-related and government bonds, would announce a second phase of quantitative easing at its November 2-3 meeting have buoyed U.S. stocks and prices for shorter-dated government debt and have undercut the dollar.
The employment report will be the last before the November 2 mid-term elections in which President Barack Obama's Democratic Party is expected to suffer large losses amid voter dissatisfaction with the state of the economy.
Opinion polls suggest Republicans will take control of the U.S. House of Representatives, which may give them a platform to pursue their agenda of restricting government spending to reduce a record budget deficit.
SIGNS OF IMPROVEMENT
The recovery from the longest and deepest downturn since the 1930s has been too slow to generate jobs, but the labor market is beginning to show some improvement.
First-time applications for unemployment benefits have dropped from a nine-month high touched in mid-August and some surveys have suggested a pick-up in demand for labor.
In addition, the government last month revised payrolls data for June and July to show fewer job losses, and analysts will be watching to seen if the trend continued in August.
"More jobs than people realize are being created," said Brett D'Arcy chief investment officer at CBIZ Wealth Management in San Diego, California.
"This recovery, although a longer recovery, is following the traditional steps of how a recovery happens. We are at the point where we should and probably will see some fairly strong job creation."
Analysts also noted that the government's separate survey of households, from which the unemployment rate is derived, has outperformed the monthly payrolls count. Still, the unemployment rate is expected to have ticked up to 9.7 percent from 9.6 percent in August.
"The eternal doom and gloom economists are saying it's a jobless recovery, the data shows its a job-light recovery. It's not major employment growth, but there is some employment growth," said Commonfund's Strauss.
While the report will probably show job losses last year were steeper than previously thought, the government's preliminary benchmark revision estimate for the 12 months through March 2010 was likely to be less shocking than the one covering the year-earlier period.
The government admitted earlier this year that its count through March 2009 had overstated employment by 902,000 jobs.
The revisions, however, will yield few clues on the direction of monetary policy and analysts will focus more on the September data.
Private hiring last month was seen supported by a marginal improvement in payrolls for the goods-producing industries. Manufacturing likely rose after an auto industry-related contraction in August.
Construction payrolls probably declined, reflecting the lasting troubles in the housing market, after August's boost from the return of striking workers.
Services sector employment is seen edging up. Temporary help services -- seen as a harbinger of permanent hiring -- will also be watched after rebounding in August.
"Job growth in the goods producing industries has been bottoming out. What we need to see, to get a really positive feed back loop in the economy, is the services sector start to edge up," said Troy Davig, senior U.S. economist at Barclays Capital in New York.
The length of the average work week, which held steady at 34.2 hours in August, could also shed more light on the labor market's prospects.
(Reporting by Lucia Mutikani; Editing by Diane Craft)