INSTANT VIEW : September payrolls fall by 263K

NEW YORK (Reuters) - U.S. employers cut a deeper-than-expected 263,000 jobs in September, lifting the unemployment rate to 9.8 percent, according to a government report on Friday that fueled fears the weak labor market could undermine economic recovery.

KEY POINTS: * The Labor Department said the unemployment rate was the highest since June 1983 and payrolls had now dropped for 21 consecutive months. * Analysts polled by Reuters had expected non-farm payrolls to drop 180,000 in September and the unemployment rate to rise to 9.8 percent from 9.7 percent the prior month. The poll was conducted before reports, including regional manufacturing surveys, showed some deterioration in employment measures. * The government revised job losses for July and August to show 13,000 more jobs lost than previously reported. Preliminary annual benchmark revisions, released together with September's employment report showed that total non-farm payroll employment for March would have to be revised down about 824,000. * Since the start of the recession in December 2007, the number of unemployed people has risen by 7.6 million to 15.1 million, the department said. * Manufacturing employment fell by 51,000 in September. The service-providing sector cut 147,000 workers in September, while goods-producing industries shed 116,000 positions. Education and health services added a mere 3,000 jobs, while government employment fell 53,000.

COMMENTS:

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

"It's clearly disappointing, but probably does not indicate that the situation is deteriorating. The issue is whether this is a turn for the worse or just a bump in a trend that is still improving. Many private sector industries are still showing month-by-month diminished weakness. But the situation is quite precarious because labor income is certainly declining which is a threat to the upward movement in consumer spending."

STEVEN WOOD, CHIEF ECONOMIST, INSIGHT ECONOMICS, DANVILLE,

CALIFORNIA:

"Jobs fell more quickly in September with widespread job losses. Since the beginning of the recession in December 2007, 7.205 million jobs have been destroyed but the pace of job loss has slowed dramatically over the past 3 months. The worst of the labor market deterioration is over. Despite this month's bigger decline, the trajectory of job losses is still positive as the trend rate has slowed as economic activity has begun to recover. The preliminary benchmark revision indicated an additional job loss of 824k for March 2009, suggesting that last year's job destruction was even greater than reported."

NIGEL GAULT, CHIEF U.S. ECONOMIST, IHS GLOBAL INSIGHT,

LEXINGTON, MASSACHUSETTS.

"It looks like very heavy losses in state and local government. The message on the private side, the trend is intact, I don't think we're reversing here... it's going to be a long slog to get back to employment growth.

"Now on the government side, we're really seeing the impacts of the state and local government budget deficits hitting the employment numbers despite the support they're getting from the stimulus package.

"They're on life support from the federal government and all the transfers they're getting. But that's not life support that lasts forever. So they're going to have to make changes, make cuts and raise taxes and fees, which I know that they're doing, so that when the federal government support expires their budget is actually back in shape.

"They got some temporary relief from the stimulus, but it doesn't mean they don't have to make some very tough decisions, they do."

DAVID ADER, HEAD OF GOVERNMENT BOND STRATEGY, CRT CAPITAL,

STAMFORD, CONNECTICUT:

"Chalk one up to the doves and postpone your views to Fed hiking until the second half of 2010 at the earliest. This was a universally soft report even if not matching the dramatic losses earlier in the cycle. Maybe it's us but the drop in state & local employment hints at financial difficulties in municipalities."

STEPHEN SCHORK, EDITOR, THE SCHORK REPORT, VILLANOVA,

PENNSYLVANIA.

"The recession may be 'technically' over, but what really counts, i.e., the perception of the recession, is obviously still around and as long as that is the case, consumers will alter their behavior in accord."

MIKE FITZPATRICK, VICE PRESIDENT, MF GLOBAL, NEW YORK. "Disappointing, but hardly shocking after yesterday's initial jobless claims. While there has been an improvement in the employment picture, compared to previous recessions the pace of the current recovery can only be characterized as glacial."

GARY THAYER, MACROSTRATEGIST, WELLS FARGO ADVISORS, ST. LOUIS,

MISSOURI:

"It shows expectations for recovery may have gotten a little ahead of the reality. Expectations are being tempered a bit right now. We're probably still on track for recovery, but it's going to take time to unfold.

"The job losses were fairly widespread. The trend is still improved from earlier this year, but employers need to feel more confident about the economy before they start hiring again. Temporary help is showing small losses. Hours worked were down."

DAN COOK, SENIOR MARKET ANALYST, IG MARKETS, CHICAGO

"I was thinking we'd actually have a lot priced in because of the bad data earlier in the week but apparently that was not the case. I think risk aversion is going to be the key for today.

"This could drive the market for a couple of days. As we're getting into the earnings season in the equities side, it is going to take a lot of good news on the earnings front to make up for this terrible job situation."

ROBERT MACINTOSH, CHIEF ECONOMIST, EATON VANCE CORP, BOSTON:

"It is a little disappointing everything else considered, especially since August and July -- one was revised down and one was revised up which kind of washed out. I think this was a little disappointing, I think the market was looking for less of a negative number. The unemployment rate at 9.8, that was right on consensus. Over all this week when you factor this in with the ISM manufacturing that came out yesterday, it was disappointing. It is going to be a very slow, very frustrating recovery and this release fits right into that."

BORIS SCHLOSSBERG, DIRECTOR OF FX RESEARCH, GFT FOREX, NEW

YORK:

"A very ugly read. But the reaction today is going to be a serious push and pull between two primary themes. On one hand, there's risk aversion, which should help the dollar. But on the other hand, what's starting to develop is a clear realization

that the U.S. is becoming the laggard in the G20 as far as recovery goes. If that theme begins to set in, that's dollar negative. It would feed the dollar carry trade relentlessly, as it suggests our rates would stay put for as far as the eye can see while the rest of the world improves. Maybe this is the final gasp of job losses for the cycle and things will improve from here, but there's still this nagging doubt that the U.S. won't be able to recover quickly, and that will weigh on the dollar."

TODD SCHOENBERGER, MANAGING DIRECTOR, LANDCOLT TRADING, SAN

ANTONIO, TEXAS:

"The poor showing in the September jobs report reinforces the fact that the U.S. economy is still extremely anemic and may take the rest of this year and well into 2010 before we can witness a full recovery."

LAWRENCE GLAZER, MANAGING PARTNER, MAYFLOWER ADVISORS, BOSTON:

"The jobs report is obviously disappointing for those looking for evidence of an economic recovery. The Treasury market had been anticipating some of the disappointment yesterday, particularly the long bond. Initially we are getting some more follow through: a continuation of that trend to lower yields in Treasuries. I think corporate bonds will react to this.

"It is not going to be positive for those wanting to take risk, so I think lower quality corporate debt may be affected (negatively)."

KEVIN CARON, MARKET STRATEGIST, STIFEL, NICOLAUS & CO, FLORHAM

PARK, NEW JERSEY:

"The number came in weaker than expected, and those numbers reflect a variety of pressures on the economy.

"One of the things we began to see last week was weakness in private sector employment with the ADP report. That indicated that there was a chance this would miss to the downside. And together with the ISM data, delinquencies data and even the consumer confidence data we had, we're starting to see a pattern of weakness emerge.

"This doesn't make be more bearish because I've been cautious all year long. We saw a lot of artificial involvement by the government to prop up the markets, and now that that is starting to end the private sector isn't yet showing signs of life. If we see further weakness in the data we're going to become even more cautious, and this is a sign of that."

JOSEPH TREVISANI, SENIOR MARKET ANALYST, FX SOLUTIONS, SADDLE

RIVER, NEW JERSEY:

"The number is going to put a real crimp on anticipation of a strong recovery. The number of job losses are moving in the wrong direction and the stock market and the dollar are not going to take comfort from this. It's a bad number."

MARKET REACTION: STOCKS: U.S. stock index futures fell. BONDS: U.S. Treasury debt prices rose. DOLLAR: U.S. dollar rose against the euro, fell against the yen.