Will the U.S. job market break its losing streak?

WASHINGTON (Reuters) - For the first time in two years, the U.S. economy may have seen a month in which more jobs were created than destroyed.

People walk past a sign during the holiday shopping season in San Francisco, California December 23, 2009. REUTERS/Robert Galbraith

If Friday’s December employment report shows a positive reading -- a long-shot but not out of the question -- it could provide a powerful jolt to what has been a sluggish recovery.

High unemployment has battered consumer confidence and spending, driven up mortgage delinquencies and defaults and put Washington’s politicians on the hot seat with mid-term elections looming in 2010.

Although it will probably take several years to repair the labor market damage done during this recession, even a glimmer of better news would go a long way toward lifting spirits -- if not lawmakers’ prospects for November elections.

“December could be the month where we see the first increase in payroll employment since December 2007, and even if it doesn’t happen this month, job gains won’t be long delayed,” IHS Global Insight economist Brian Bethune said.

His firm’s official view is that the report will show a payroll decline of perhaps 30,000 jobs for December, which would be a vast improvement from the 681,000 positions lost in December 2008.

Some others are even more upbeat. Abiel Reinhart, an economist with JPMorgan in New York, thinks nonfarm payrolls grew by 40,000 last month.

That forecast puts Reinhart in the minority, according to an initial Reuters poll of economists. But more economists may bump up their estimates next week if surveys on factory and services sector activity indicate business picked up more robustly than anticipated.

The Reuters poll showed only 9 of 38 -- not including Reinhart’s firm -- thought Friday’s report would show payroll gains. Six forecast a flat reading and the rest were looking for modest declines.

There is reason to be somewhat optimistic about prospects for the U.S. labor market in the coming months.

Most economists think economic growth strengthened in the fourth quarter, which means companies that cut to the bone to survive the deep recession will need to start bringing back workers in order to meet renewed demand.

Uncle Sam is about to hire hundreds of thousands of temporary workers to help with the once-a-decade Census, which tracks population growth and other national statistics.

While those jobs will last only a few weeks, they pay well -- starting pay of $22 an hour in expensive cities such as San Francisco; $11.50 in less-costly locales such as Asheville, North Carolina.

Some of that money will find its way into the economy, lifting demand, which should eventually prompt companies to add more full-time jobs.

“The underlying economy has a lot of upside momentum,” said John Silvia, chief economist for Wells Fargo in Charlotte, North Carolina.


But Silvia cautioned that businesses might take their time resuming hiring because of uncertainty surrounding weighty matters such as health care, taxation and regulation -- three of the biggest issues facing lawmakers in Washington in 2010.

That is one reason why he thinks monthly payroll figures will turn positive in March or April, not December.

Even if businesses are ready to rehire sooner, fixing the labor market will not be a quick process. Since the start of the recession, about 7.9 million jobs have been lost. To put that in perspective, there were 2.5 million jobs created in 2005, which was the peak of the housing boom and a year in which the economy grew a healthy 3.1 percent.

Few economists expect that level of growth over the next few years -- and even if output were that robust, it would take at least three years to recoup the lost jobs.

For members of Congress facing midterm elections in November, the weak labor market may cost them their own jobs.

Silvia said even if employment stages a dramatic recovery, the jobless rate will almost certainly be higher this November than in the 2008 election, so lawmakers will have a tougher time convincing voters they deserve another term in office.

Unemployment was 6.8 percent in November 2008, when Barack Obama was elected president and Democrats won enough congressional seats to take control of both chambers of Congress. It is now at 10 percent.

“You’re going to have, no doubt, a good 20 to 30 Democrats who are going to lose their position,” Silvia said.

Editing by Dan Grebler