U.S. employers likely maintained a fairly strong pace of hiring in December, suggesting that a recent but sharp manufacturing-led slowdown in economic growth would be temporary.

A sign marks the entrance to a job fair in New York October 24, 2011.

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.

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.

Source: Reuters