INSTANT VIEW: September payrolls show steepest fall in 5 1/2 yrs

NEW YORK (Reuters) - U.S. employers cut payrolls at the steepest rate in 5-1/2 years during September, slashing an unexpectedly large 159,000 nonfarm jobs as employment contracted for a ninth straight month.

KEY POINTS: * The unemployment rate was unchanged from August at 6.1 percent. * September's job losses were more severe than predicted by Wall Street economists surveyed by Reuters, who had forecast 100,000 jobs would be cut. * The report likely will ratchet up pressure on members of the U.S. House of Representatives to vote for a $700-billion rescue package for banks and other financial firms burdened by bad mortgage-related assets, which is contributing to a spreading credit crunch. * September's cuts follow revised losses of 73,000 jobs in August and 67,000 in July and show the decline in employment is accelerating. Some 51,000 manufacturing jobs were lost last month on top of 56,000 cut in August, the 27th straight month in which manufacturers slashed their payrolls.

COMMENTS:

RAVIN JESUTHASEN, MANAGING PRINCIPAL, TOWERS PERRIN, CHICAGO:

"Given the squeeze in cash and the tightness in credit, many organizations will step back and think about how to best staff their organizations in the short-term and long-term.

"Short-term financing will trickle into whether to support the workforce and how they will execute their long-term strategies.

"Further layoffs will be sector specific. Organizations will be looking at who's key to their business today and pivotal to it in three to five years.

"There are still shortages in leadership talents and industries such as healthcare.

"We are seeing a lot organizations concerned about their staffing levels, but some see this environment to upgrade their talent pools."

IAN SHEPHERDSON, CHIEF U.S. ECONOMIST, HIGH FREQUENCY ECONOMICS, VALHALLA, NEW YORK:

"The U.S. economy is shrinking, and there will be many more awful reports like this. Payrolls were weak everywhere except in government and education; the big change is in services, down a huge 82,000, way below the -15,000 prior trend... The Fed has more to do, 50 basis points ease On October 29 or sooner."

BRIAN DOLAN, CHIEF CURRENCY STRATEGIST, FOREX.COM, BEDMINSTER, NEW JERSEY:

"U.S. non-farm payrolls are slightly worse than expected, with a net revision to prior months... along with the unemployment rate holding steady -- which somewhat mitigated the weakness. The market is not showing any sign yet of abandoning the strong U.S. dollar theme of the week, but I remain optimistic that we will get a TARP passage, ugly as it may be and the market will embrace risk as an antidote to fear."

SUBODH KUMAR, CHIEF INVESTMENT STRATEGIST, SUBODH KUMAR & ASSOCIATES, TORONTO:

"The jobless rate of 6.1 percent, means to me that from a stock market perspective, consumers are unlikely to be early leaders in this market. The key is to stabilize the financial sector. I think financials will provide direction for the stock market.

"Having said that, I'm at about 1100 for the S&P. I'm looking for a more mild decline than the decline in 2000-2001. Less than that, but more than we currently see. High volatility remains, and the (jobs) numbers will contribute to high volatility, even if the market doesn't move today. Today, the focus will be on the economic numbers, not the financials. Financials are stabilizing somewhat. The weaker ones will go into liquidation but the stronger ones are stabilizing. I think today, the markets will react to the economy overall."

CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK:

"It's not pretty but it could be a lot worse given the environment. That in itself is good news. The economy is still at least in an orderly retreat.

"The combination in the drops in nonfarm payrolls and the work week means another drop in aggregate hours worked during the quarter, and there is not enough productivity to offset that.

"That means GDP in the third-quarter will be probably negative. My estimate is negative 0.5 percent.

"If we get a rate cut in October, it's not because of employment. It will be a response to the money markets. The root cause of the problem is the European banking system. There is no reason for the Fed to cut before the ECB."

NEAL SOSS, CHIEF ECONOMIST, CREDIT SUISSE, NEW YORK:

"The economy is weakening significantly, and there's more of that ahead because the credit strains of earlier in the year have only intensified."

MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BANK OF NEW YORK MELLON, NEW YORK:

"First of all, we suspected that this was going to be not only a negative number, but the risk is on the downside.

"Expectations were already pretty dire... minus 159,000, it's not good. It'll buy the rumor, sell the fact. We're not focused on fundamentals right now. We're looking at this bailout rescue plan being voted on today. There's a lack of consensus over what the outcome is going to be there. It's obviously very important. We're very much focused again on the spread of the crisis overseas, which is being viewed as a dollar positive."

JUSTIN WIGGS, EQUITIES TRADER, STIFEL NICOLAUS CAPITAL MARKETS, BALTIMORE:

"I don't put too much stock in the number because the revisions on payrolls are typically very wide. Also, the unemployment rate and the factory jobs components were OK. There had even been some chatter that the hurricanes were impacting the jobs data, so there could be some noise there. Realistically, the focus is on the Wells Fargo-Wachovia deal. Paulson's been saying all along he wanted to get private markets involved again. Also, all indications suggest (the bailout bill) is gaining speed in the House, which is important, because if it doesn't pass, it could get ugly."

DAVID WATT, SENIOR CURRENCY STRATEGIST, RBC CAPITAL MARKETS, TORONTO:

"The headline number was bad but the jobless rate was steady at 6.1 percent, so the report wasn't that bad overall. Since the payrolls number deteriorated so badly, it was a surprise that the jobless rate did not rise as much. It gives you a sense that maybe the deterioration in non-farm payrolls doesn't reflect the ongoing turmoil in financial markets. I don't think there's any doubt that the labor market has weakened, but not deteriorating quite quickly as the headline indicated."

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:

"The employment figures were weak in every important dimension. We've seen weaker data in history, but these look pretty decisively to be the beginning of something worse.

"Employment declines were widespread and large. Nevertheless, average weekly hours worked fell which suggests that demand for labor was falling even faster than employment.

"Meanwhile, you had only a small increase in average hourly earnings which means that labor income, in total, almost certainly fell.

"Most Feds in the past would have regarded this as pretty conclusive evidence that the economy is in bad shape. The current Fed is still a bit worried that easy policy will cause a surprising re-acceleration at a too high rate of inflation. But those concerns are probably easing significantly with these data and other markedly poorer economic data."

WILLIAM SULLIVAN, CHIEF ECONOMIST, JVB FINANCIAL GROUP, BOCA RATON, FLORIDA:

"Credit market stresses are beginning to impact the labor markets. We may be dealing with even weaker job figures later this year or into 2009.

"Treasuries had appreciable gains before the release of these statistics. I think this (Treasuries paring price gains) is all kneejerk responses to the data and also there is the focus on a vote on the bailout package on Capitol Hill later in the day."

MARKET REACTION: STOCKS: U.S. stock index futures rise. BONDS: Treasury prices pare gains. DOLLAR: U.S. dollar pares losses versus the euro. RATE FUTURES: Fed fund futures hold gains, see 50 basis point rate cut in October.