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 Nonfarm payrolls probably increased by 200,000 jobs, just a slight
step down from the 211,000 created in November, according to a
Reuters survey of economists. The unemployment rate is expected to
have held steady at a 7-1/2-year low of 5 percent.
A solid employment report could soothe fears over the economy's
health by showing recent weakness largely contained in the
manufacturing and export-oriented sectors, which have been hit by a
strong dollar and anemic global demand.
Efforts by businesses to whittle down an inventory glut and spending
cuts by energy companies have also inflicted pain.
"The U.S. economy is a two-sided economy. The domestic sector
continues to power job growth. There is a risk that the weakness in
manufacturing could spread to services, but we don't see that right
now," said Thomas Costerg, a senior economist at Standard Chartered
Bank in New York.
 In the wake of soft reports on manufacturing, construction spending
and export growth, economists this week slashed their fourth-quarter
growth estimates by as much a full percentage point to as low as a
0.4 percent annual rate. The economy grew at a 2 percent rate in the
third quarter of last year.
The Labor Department's closely monitored jobs report, which will be
released on Friday at 8:30 a.m. (1330 GMT), could offer a brief
respite to global stock markets after heavy selling this week
sparked by signs of slowing growth in China.
While labor market resilience would favor another interest rate hike
from the Federal Reserve in March, economists say financial market
turmoil and concerns among policymakers over low inflation suggest
the U.S. central bank may stay on the sidelines a bit longer.
The Fed last month raised overnight interest rates by a quarter
percentage point to between 0.25 and 0.50 percent, the first
increase in nearly a decade, and a subsequent move at its next
meeting this month was already seen as off the table.
INFLATION FOCUS
"The Fed has shifted its emphasis away from the job market and
toward actual progress in inflation," said Ryan Sweet, senior
economist at Moody's Analytics in Westchester, Pennsylvania.
"Whether they will be hiking in March will be dependent on financial
market conditions and moving core inflation toward the 2 percent
target."
As such, wage growth will come under scrutiny. The jobs report on
Friday is expected to show average hourly earnings increased 0.2
percent in December.
The year-on-year gain in earnings could move as high as 2.8 percent
from 2.3 percent in November, but economists said that would mostly
be because wages were unusually weak in December 2014.
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Still, wage growth is expected to accelerate by the middle of the
year as the labor market settles into full employment.
"The most important development in 2016 will be an acceleration in
wage growth towards the 3 percent mark. If wages pick up, the hurdle
for the Fed pausing or halting the policy normalization process
would be raised," said Michelle Girard, chief economist at RBS in
Stamford, Connecticut.
Also being watched closely this year is the labor force
participation rate, or the share of working-age Americans who are
employed or at least looking for a job. The rate is hovering near
four-decade lows.
There are concerns that persistently low participation could hamper
job growth as the supply pool shrinks, unless a pick-up in earnings
entices more Americans to return to the labor force.
Employment gains in December were probably concentrated in the
services sector, with manufacturing and mining likely to have shed
more jobs.
Mining employment has already declined by 123,000 since reaching a
peak in December 2014, and more losses are likely after oil prices
this week tumbled to an 11-year low.
Oilfield services provider Schlumberger last month announced another
round of job cuts in addition to 20,000 layoffs already reported in
2015. The company said it expected the slowdown in drilling activity
to continue this year.
Unusually warm weather likely boosted construction payrolls, as well
as employment in the leisure and hospitality sector. Courier
services hiring probably rose on strong online sales.
Retail payrolls are a wild card as mild temperatures hurt sales of
winter apparel.
(Reporting by Lucia Mutikani; Editing by Tim Ahmann and James
Dalgleish)
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