By Timothy R. Homan Nov. 6 (Bloomberg) -- The unemployment rate in the U.S. soared to a 26-year high of 10.2 percent in October and employers cut more jobs than forecast, underscoring why Federal Reserve policy makers say interest rates will remain low until the labor market recovers. Payrolls fell by 190,000 workers last month, compared with a 175,000 drop anticipated by the median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington. The jobless rate gained from 9.8 percent in September and exceeded 10 percent for the first time since 1983. Companies such as Johnson & Johnson are cutting staff on concern the emerging recovery will be cut short as American consumers retrench. Fed policy makers this week said the economy will probably “remain weak for a time” and reiterated a pledge to keep borrowing costs low for an “extended period.” “Labor markets overall still reflect recessionary conditions, and further downward pressure on employment and compensation is likely,” Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “It is no surprise that consumer confidence is backpedaling, and the outlook for consumer spending is poor.” Revisions added 91,000 from payroll figures previously reported for September and August. Payrolls were forecast to drop 175,000 after an initially reported 263,000 decline for September, according to the median estimate of 84 economists surveyed by Bloomberg News. Estimates ranged from decreases of 250,000 to 105,000. Median Forecast The jobless rate was projected to rise to 9.9 percent. Forecasts ranged from 9.8 percent to 10.1 percent. Monthly losses accelerated after the collapse of Lehman Brothers Holdings Inc. in September 2008 and peaked at 741,000 in January. Today’s report showed factory payrolls dropped 61,000 after decreasing 45,000 in the prior month. The median forecast by economists called for a drop of 42,000. The decline included a gain of 4,600 jobs in auto manufacturing and parts industries. Sales of cars and light trucks rebounded last month after plunging in the wake of the government’s so-called cash-for- clunkers incentive plan. Vehicles sold at a 10.5 million annual pace in October, up from a 9.2 million rate in September. Payrolls at builders declined 62,000 after a loss of 68,000 in September. Financial firms cut payrolls by 8,000, after 9,000 reductions the prior month. Services Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 61,000 workers after cuts of 105,000 the prior month. Retail payrolls decreased by 39,800 after a decline of 44,200. Government payrolls were unchanged from the prior month, the report showed. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- reached a record 17.5 percent from 17 percent in September. Temporary workers rose by 34,000, the first gain since December 2007, when the recession began. Neal Soss, chief economist at Credit Suisse in New York, is among those saying the gain is a harbinger of increases in overall employment. Payrolls at temporary-help agencies often turn up before total employment because companies are not certain increases in demand will be sustainable enough to warrant the expense of taking on permanent staff. 10% Threshold Economists surveyed by Bloomberg last month projected the jobless rate will exceed 10 percent early next year and average 9.9 percent for all of 2010 even as the economy expands 2.4 percent next year. Voters in Virginia and New Jersey this week took out their frustration over joblessness on the political party in charge. The economy and jobs were the most important issues as Republicans won governorships in both states held by Democrats, according to election polls. President Barack Obama in February signed into law a $787 billion stimulus package aimed at reviving growth and stemming job losses. The administration said last week that the plan was directly responsible for saving or creating about 640,000 jobs. Exit polling this week showed six in ten New Jersey voters and 55 percent of Virginians said Obama didn’t influence their vote. The U.S. economy expanded last quarter for the first time in a year, growing at a 3.5 percent pace as government incentives spurred consumers to spend more on homes and automobiles. Spending Some companies are cutting payrolls amid concern spending will cool as government-assistance programs wane. The New Brunswick, New Jersey-based Johnson & Johnson, the world’s largest health-products company said Nov. 3 it will shrink its workforce by as much as 7 percent, or 7,000 workers. Other companies are gaining confidence. Deere & Co., the world’s largest maker of agricultural equipment, said last week it’s recalling 452 workers, the majority of manufacturing employees dismissed earlier this year at a factory in Iowa. Cisco Systems Inc.’s John Chambers, one of the first technology leaders to herald the recession two years ago, said yesterday he now sees a global economic recovery, fueling a rebound in his company’s sales this quarter. “The numbers are indicating us being in the early, initial phase of a recovery -- with the U.S. leading the way,” Chambers said in an interview. Average Hours The average work week held at a record low of 33 hours in October, while average weekly earnings rose to $617.76 from $616.11 a month earlier. Workers’ average hourly earnings were 2.4 percent higher than October 2008, the smallest gain since 2004. Fed officials met in Washington this week and signaled that a return to economic growth alone won’t result in higher interest rates. Economist Joseph LaVorgna of Deutsche Bank Securities Inc. in New York said in a note to clients that the jobless rate is “the dominant variable driving changes in the fed funds” rate, and the central bank “has never raised rates with unemployment rising.”

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