The U.S. economy probably created more jobs in December than any month since May, confirming a self-sustaining recovery is underway, but the unemployment rate is seen edging down only slightly.
Non-farm payrolls increased by an estimated 175,000 after November's slim 39,000 gain, according to a Reuters survey.
Job growth last May was boosted by temporary hiring for a decennial census. By contrast, the private sector is expected to have driven jobs growth in December -- up 180,000 for its biggest gain since April, according to the Reuters poll.
The recovery is becoming more sustainable and less dependent on temporary growth factors, particularly inventories, said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.
There is more support coming from private demand, particularly consumption. But the labor market improvement is still way slower than what everybody would hope for.
The Labor Department will release the closely watched employment report at 8:30 a.m. and it is expected to add to a run of stronger U.S. economic data.
Speculation about a strong jobs report helped push the U.S. dollar to a five-week high against the euro on Thursday.
There's a strong consensus that there will be some good numbers coming out of the (United) States tomorrow ... and expectation of a huge payrolls number is fueling all sorts of dollar buying, said C.J. Gavsie, managing director of FX sales at BMO Capital Markets in Toronto.
Nonetheless, the unemployment rate is expected to have only ticked down to 9.7 percent from 9.8 percent in November.
Strong employment numbers for December would be a boost for President Barack Obama. High joblessness cost his Democratic Party control of the U.S. House of Representatives.
Federal Reserve officials will weigh the jobs report when they meet on January 25-26. Signs of strength could increase calls for the U.S. central bank to scale back its widely criticized $600 billion government bond-purchasing program.
Some policymakers indicated in December they had a fairly high threshold for curtailing the stimulus program.
FED TO STAY THE COURSE
Fed Chairman Ben Bernanke speaks on the economic outlook before the Senate Budget Committee at 9:30 a.m..
Analysts say the Fed's focus is on unemployment and expect it to complete the bond-buying plan.
Gains in payrolls won't be enough to spark a change in Fed policy until the gains either accumulate for many, many months or are accompanied by gains in inflation expectations, said Tony Crescenzi, a strategist at bond fund PIMCO.
The economy usually needs to create at least 125,000 jobs a month to keep the unemployment rate from rising, but a faster pace might be needed now since so many discouraged workers are sitting on the sidelines. As job growth picks up, these workers could re-enter the labor force, keeping upward pressure on the jobless rate.
New filings for state unemployment benefits fell for most of December and planned layoffs dropped to a 10-1/2 year low, pointing to an improvement in job market conditions.
On Wednesday, payrolls processing company ADP Employer Services said private employers added 297,000 workers in December -- the largest gain on ADP records dating to 2000.
Many economists raised their payrolls forecasts after the ADP report but some cautioned it may have been skewed by technical factors. Others said it was often an unreliable guide to predicting the government's payroll count.
Employment gains in December are seen led by the private services sector. A rebound in retail jobs is expected after a surprise 28,100 slump in November when retailers reported their best sales in years.
Temporary hiring, seen as a harbinger of permanent employment, is expected to have held steady.
The goods-producing sector probably shed jobs in December after losing 15,000 in November, with manufacturing payrolls likely falling a fifth straight month. Little or no change is expected in construction employment.
Government jobs are expected to shrink after November's 11,000 fall, reflecting lower local government employment.
The average work week is seen steady at 34.3 hours. Employers tend to extend hours for existing workers before taking on new employees.
Average hourly earnings are seen up 0.2 percent after being flat in November.
The Labor Department will publish annual revisions to household survey data from which the unemployment rate is derived which could see revisions for the past five years.
(Reporting by Lucia Mutikani; Editing by Andrew Hay)