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By Bob Willis
Nov. 7 (Bloomberg) -- President-elect Barack Obama may find out today just how big an economic mess he will inherit.
The Labor Department will probably report that the jobless rate climbed to a five-year high of 6.3 percent in October, according to the median estimate of economists surveyed by Bloomberg News. Payrolls shrank by 200,000 workers, the biggest decline since the start of the Iraq War in March 2003, according to the economists.
Unemployment may only worsen by the time Obama takes office in January, analysts said, making it easier for congressional Democrats to push through another economic stimulus package. Obama meets today with his transition economic group, including billionaire investor Warren Buffett and former Federal Reserve Chairman Paul Volcker. He'll also hold his first post-election press conference.
``Although the economy was the No. 1 key to Obama's success, as of Jan. 20 it will be his No. 1 problem,'' said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. ``The damage from the financial crisis is quickly becoming evident.''
The dollar fell for a third day against the yen and declined against the euro on speculation the jobs report will bolster the case for the Fed to lower interest rates. The dollar slipped to 97.36 yen at 9:19 a.m. in London, from 97.75 yesterday in New York. It weakened to $1.2830 per euro from $1.2715.
Treasuries headed for a weekly gain. The two-year note yield was at 1.30 percent, having fallen to 1.28 percent yesterday. It has dropped 25 basis points this week.
Goldman Forecast
The 78 economists surveyed forecast October job losses ranging from 85,000 to the 300,000 predicted by Goldman Sachs & Co. The jobless rate last month probably rose from 6.1 percent in September. The Labor Department's report is due in Washington at 8:30 a.m.
The projected drop in payrolls would follow a decline of 159,000 in September and bring total losses so far this year to 960,000.
Factories probably cut 65,000 workers from payrolls, according to the survey median. A strike by 27,000 machinists at Boeing Co., which was resolved earlier this month, will contribute to the drop, economists said.
`Extended Slowdown'
Reports this week signaled the labor market has deteriorated. U.S. companies eliminated an estimated 157,000 jobs in October, according to a survey by ADP Employer Services. Employers announced 112,884 job cuts last month, an increase of 79 percent from October 2007, Chicago-based Challenger, Gray & Christmas Inc. said yesterday.
``Most firms are girding for an extended slowdown,'' said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, and Bloomberg's best forecaster for 2008. ``The worst is not likely to be seen for a few more months as firms are just beginning to give notice of layoffs.''
The loss of jobs, plunging home prices, and a record tightening of bank lending may cause consumers and businesses to keep retrenching.
Gross domestic product shrank at a 0.3 percent annual pace in the third quarter and consumer spending fell at a 3.1 percent pace, the most since 1980. Economists surveyed by Bloomberg project the economic slump will deepen this quarter.
Stimulus Packages
The faltering economy and imploding financial markets helped push Obama ahead of Republican rival John McCain, a senator from Arizona, particularly in hard-fought states like Ohio and Florida where unemployment rates have jumped.
Americans also gave Democrats larger majorities in the House and Senate as voters blamed Republicans for the economic malaise. House Speaker Nancy Pelosi said this week Democrats may seek two stimulus packages if President George W. Bush limits the size of a plan to be considered during the post-election session later this month.
Firings by builders and automakers have now spread to retailers and other service companies.
American Express Co., the largest U.S. credit-card company by purchases, said Oct. 30 it would eliminate 10 percent of its workforce, or about 7,000 people, to cut costs amid rising defaults as consumers fail to repay their debts.
The job cuts ``will help us to manage through one of the most challenging economic environments we've seen in many decades,'' Chief Executive Officer Kenneth Chenault said in a statement.
Bloomberg Survey
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Nonfarm Unemploy Manu Pending
Payrolls Rate Payrolls Homes
,000's % ,000's MOM%
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Date of Release 11/07 11/07 11/07 11/07
Observation Period Oct. Oct. Oct. Sept.
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Median -200 6.3% -65 -3.4%
Average -207 6.3% -65 -3.5%
High Forecast -85 6.5% -35 1.0%
Low Forecast -300 6.2% -95 -6.0%
Number of Participants 78 77 20 30
Previous -159 6.1% -51 7.4%
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4CAST Ltd. -230 6.3% --- -5.0%
Action Economics -210 6.3% -80 -4.0%
AIG Investments -179 6.2% --- -3.0%
Aletti Gestielle SGR -180 6.4% -65 ---
Allianz Dresdner Economic -175 6.3% --- ---
Argus Research Corp. -85 6.2% -35 ---
Banc of America Securitie -210 6.3% --- ---
Bancolombia SA -225 6.2% --- ---
Bank of Tokyo- Mitsubishi -201 6.3% --- ---
Bantleon Bank AG -200 6.3% --- ---
Barclays Capital -175 6.3% --- ---
BMO Capital Markets -200 6.3% --- -3.0%
BNP Paribas -190 6.4% --- ---
Briefing.com -180 6.3% --- ---
Calyon -250 6.4% --- ---
CIBC World Markets -200 6.2% --- ---
Citi -250 6.4% --- ---
ClearView Economics -200 6.3% -60 ---
Commerzbank AG -200 6.4% --- -4.0%
Credit Suisse -225 6.3% --- ---
Daiwa Securities America -180 6.3% --- ---
Danske Bank -210 6.3% --- ---
DekaBank -170 6.2% --- -4.0%
Desjardins Group -185 6.3% --- ---
Deutsche Bank Securities -250 6.3% --- -5.0%
Deutsche Postbank AG -180 6.2% --- ---
Dresdner Kleinwort -200 6.4% -50 -3.0%
DZ Bank -185 6.3% --- -2.5%
First Trust Advisors -150 6.3% -64 ---
Fortis -180 6.3% --- -2.6%
FTN Financial -200 6.3% --- ---
Goldman, Sachs & Co. -300 6.4% --- ---
H&R Block Financial Advis -220 6.3% -95 -6.0%
Helaba -200 6.3% --- ---
Herrmann Forecasting -243 6.3% --- ---
High Frequency Economics -150 6.3% --- -5.0%
Horizon Investments -250 6.3% --- -4.0%
HSBC Markets -230 6.3% --- -3.0%
IDEAglobal -220 6.3% -90 -3.0%
IHS Global Insight -250 6.3% --- ---
Informa Global Markets -240 --- -65 ---
ING Financial Markets -230 6.4% --- ---
Insight Economics -225 6.3% --- ---
Intesa-SanPaulo -190 6.3% --- ---
J.P. Morgan Chase -210 6.4% --- ---
Janney Montgomery Scott L -185 6.4% --- -5.5%
JPMorgan Private Client -170 6.2% -65 -2.0%
Landesbank Berlin -150 6.2% --- ---
Lloyds TSB -180 6.2% -55 -4.0%
Maria Fiorini Ramirez Inc -200 6.3% --- ---
Merk Investments -260 6.3% -64 -3.7%
Merrill Lynch -225 6.3% --- ---
Moody's Economy.com -250 6.4% -65 -3.0%
Morgan Keegan & Co. -183 6.2% --- ---
Morgan Stanley & Co. -175 6.3% --- ---
National Bank Financial -200 6.3% --- ---
National City Corporation -242 6.2% --- ---
Natixis -225 6.3% --- -5.0%
Newedge -150 6.2% -45 ---
Nomura Securities Intl. -170 6.3% -80 ---
PNC Bank -200 6.4% -40 ---
RBS Greenwich Capital -220 6.3% -80 ---
Ried, Thunberg & Co. -250 6.5% --- -2.5%
Schneider Trading Associa -217 6.4% -61 -2.8%
Scotia Capital -250 6.3% --- ---
Societe Generale -185 6.3% --- ---
Standard Chartered -260 6.3% --- ---
Stone & McCarthy Research -225 6.2% -72 ---
TD Securities -225 6.3% --- ---
Thomson Financial/IFR -175 6.3% --- -2.6%
UBS Securities LLC -250 6.4% --- -4.0%
Unicredit MIB -200 6.3% --- 1.0%
University of Maryland -170 6.3% -60 -2.0%
Wachovia Corp. -283 6.2% --- ---
Wells Fargo & Co. -175 6.3% --- ---
WestLB AG -200 6.3% --- -4.0%
Westpac Banking Co. -200 6.4% --- -6.0%
Wrightson Associates -250 6.5% --- -2.5%
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To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
Last Updated: November 7, 2008 04:42 EST
