SNAP ANALYSIS: Jobless, the lagging indicator, still sagging

WASHINGTON (Reuters) - President Barack Obama's economic headache just got worse.

Friday's employment report showed heavier-than-expected job losses last month, and an alarming spike in the unemployment rate to 10.2 percent, highest since 1983.

For Obama, who has made job growth a top priority but is reluctant to try to push another big stimulus spending package through a debt-weary Congress, the report gives opponents a chance to score some easy points.

Economists were expecting the jobless rate to peak somewhere around 10.2 percent next spring, so the fact that it hit that level last month will raise questions about how high the peak may be.

For the Federal Reserve, it suggests sufficient slack in the economy to allow it to keep interest rates extraordinarily low for a long time.

The bleak unemployment picture drove U.S. stock index futures sharply lower early on Friday, spurring a move away from risky assets and into safer assets such as U.S. Treasuries and the Japanese yen. The U.S. dollar also edged up against the euro.

HIGHLIGHTS

* The strongest category in the October jobs report was temporary help, which may be at least a faint signal that companies are looking for more workers even if they're not ready to commit to hiring new full-time staff.

* Among the big disappointments was manufacturing, where job losses climbed to 61,000 from 45,000 in September.

* Manufacturing is typically on the leading edge of the business cycle -- first to fade when the economy slumps, and first to perk up when it recovers. Many economists were looking for a better reading after a report earlier in the week showed factories were busier than expected.

* Still, manufacturing accounts for only about 10 percent of the U.S. labor force, so the much larger services sector bears closer scrutiny.

* The economy lost a net 61,000 services jobs last month, considerably better than the prior month's 105,000 decline but still weak. Two thirds of the job losses were in the retail sector -- even more evidence that households are watching their spending carefully.

* Some of the services sector weakness is probably tied to the credit crisis. A large portion of the services job growth comes from small businesses, and they have had a particularly rough time obtaining credit.

* Small-business surveys show owners are worried about how healthcare reform will affect their labor costs, and whether taxes are heading higher. Those worries may also be weighing on hiring decisions.

* For Obama, who is expected to sign a bill soon extending jobless benefits for as many as 20 weeks, unemployment has become his biggest political headache.

* His Democratic party lost two state governor elections this week, and voter polls showed unemployment was among the major concerns. That sentiment was echoed in a Thomson Reuters/Ipsos poll released this week, which found unemployment was the key economic concern.

* Budgetary pressures put the Obama administration in a bit of a bind as they look for more ways to stimulate the economy without digging the country too deeply into debt. With the fiscal deficit already at 10 percent of national output, the administration would have to convince Congress that any extra spending is worth the cost.

* For the U.S. Federal Reserve, which held interest rates unchanged near zero at its policy-setting meeting this week, the still-suffering labor market means wage inflation is not a problem. Without wage inflation, the Fed can feel more comfortable keeping rates extraordinarily low.