Washington, Nov. 1 (Bloomberg) -- The U.S. unemployment rate probably rose to 5.8 percent in October as the economy failed to create jobs and manufacturing contracted for a second straight month, the latest signs that growth may be stalling, economists said in advance of today's reports. The jobless rate would be up from 5.6 percent in September and the highest in three months, according to the median of 62 estimates in a Bloomberg News survey. No change in payrolls is forecast after companies shed 43,000 jobs a month earlier. A reading of 49 is expected in the Institute for Supply Management's factory index, based on the median of 60 forecasts. A number less than 50 signals contraction.
A&P Supermarkets and DaimlerChrysler AG have stopped hiring and idled workers as consumer spending slows and business investment remains weak. The lack of hiring, which comes amid a slump in consumer confidence and a plunge in factory orders, may prompt Federal Reserve policy makers to lower interest rates as early as next week. ``There's been an accumulation of evidence about a weakening economy that's probably going to lead the Fed to ease,'' said Mickey Levy, chief economist at Banc of America Securities LLC in New York. ``Businesses are very cautious, and they're not hiring much yet. That goes hand in hand with their pessimism about the economy.''
The Labor Department issues the employment report at 8:30 a.m. Washington time, while the ISM factory index is set for release at 10 a.m. Falling confidence has raised doubts about the strength of consumer spending, the biggest part of the economy. That's why manufacturers are reducing production and firing workers. The expected decline in the October ISM index compares with a reading of 49.5 in September.
Consumer Spending
Manufacturing may keep weakening if consumer spending stalls. A separate Commerce Department report, also for release at 8:30 a.m. Washington time, will probably show that personal spending fell in September for the first time in 10 months, as Americans stopped buying new cars at low interest rates, economists said. The expected 0.2 percent decline in September spending would follow a 0.3 percent rise in August. Incomes may have risen 0.5 percent in September, the second straight increase, according to economists.
Meantime, few signs of a pick up in business investment is damping construction spending on commercial projects, a Commerce report is expected to show at 10 a.m. Washington time. Construction spending probably rose 0.1 percent in September, the first increase in five months, after falling 0.4 percent during August, economists said.
Hiring
The economic slowdown in the economy has been hard on commercial construction projects. Home building has been helped by the lowest mortgage rates in four decades as well as pent-up demand. A weakening in the economy is causing some companies to curtail hiring and idle factories. Great Atlantic and Pacific Tea Company, the operator of A&P and Waldbaum's grocery chains, has instituted a hiring freeze and halted salary increases for non- union employees. DaimlerChrysler temporarily shut a plant in St. Louis this week because of reduced demand for the company's vehicles.
``Certainly the market is slower than it was two months ago,'' said Dieter Zetsche, chief executive of DaimlerChrysler AG's Chrysler unit, in an interview last week. Temporary workers are finding limited job opportunities. ``We are currently are seeing strongest demand for workers in the areas of health care, information technology, financial services and educational staffing,'' Kelly Services Inc. Chief Operating Officer Carl Camden said. ``Although we are encouraged by these improvements, this activity is still not close to the robustness we have seen in past recoveries.'' Kelly is the second-largest U.S. temporary employment company.
Manufacturing
And manufacturers probably eliminated 25,000 positions last month, the 27th straight month of factory job losses, economists surveyed said. The private workweek probably shortened to 34.2 hours, down from 34.3 hours in September. The reluctance to hire comes as growth slows to a pace that economists say is below the economy's potential. The U.S. economy will probably grow at a 2.2 percent rate this quarter, according to the October Blue Chip Economic Indicators survey. That is down from a 3.1 percent pace in the third quarter and below the 3.5 percent to 4 percent pace that economists associate with a healthy economy.
Weak growth explains why investors are betting the central bank will lower the target rate on overnight loans between banks when it meets on Nov. 6, judging trading in federal funds futures. The benchmark overnight rate has been at a 41-year low of 1.75 percent since December. The implied yield on the November federal funds futures contract is 1.56 percent. *T //www.quote.bloomberg.com