Employment likely posted a second straight month of solid gains in March, marking a decisive shift in the labor market that should help to underpin the economic recovery.

Nonfarm payrolls rose 190,000 last month, according to a Reuters survey, after increasing 192,000 in February. The anticipated job gains come amid indications the economy suffered a minor setback early in the year as bad weather and rising energy prices dampened activity.

All the evidence is pointing to a strengthening labor market, said Bill Cheney, chief economist at John Hancock Financial Services in Boston.

The Labor Department will release the closely watched employment report at 08:30 a.m. on Friday.

While the report will indicate sufficient underlying strength in the economy to cushion it against the impact of high energy prices, it will not be strong enough to discourage the Federal Reserve from its ultra-easy monetary policies.

Policymakers at the U.S. central bank are, however, debating whether they should start considering withdrawing some of their massive economic stimulus.

The government will revise January and February employment figures with the March report. The recent trend has been for payrolls to be adjusted upward.

The private sector will account for all the new jobs in March, with an expected 200,000 positions. Although rising energy prices -- boosted by unrest in the Middle East and North Africa -- are eroding consumer confidence, economists do not expect businesses to put the brakes on hiring just yet.

Employment gains have been modest in recent months, so in that sense I think businesses that were initially very wary of taking on permanent full-time employees are feeling very confident now than was case some months ago, said Richard DeKaser, an economist at Parthenon Group in Boston.

As a result they are more willing to make those kinds of long-term commitments.


The strengthening labor market tenor will also be underscored by the unemployment rate, which is expected to hold steady at a near two-year low of 8.9 percent.

The jobless rate, which is derived from a survey of households, has dropped 0.9 of a percentage point since November, mostly reflecting employment gains rather than a rise in the number of discouraged job-seekers.

It could start rising as the improving employment picture coaxes those who have given up the search for work to re-enter the labor market. Some economists believe the unemployment rate could have edged down in March.

It is always possible that as the job market improves, people will start looking again and the unemployment rate could go up, said John Hancock's Cheney. But the normal pattern is once it starts coming down as rapidly as it has over the last few months, it keeps on going down.

The jobless rate is one of the factors that could determine the timing of the Fed's first interest rate hike since it cut overnight lending rates to near zero in December 2008.

The central bank last month described the labor market as improving gradually and dropped a reference it had used in a statement in January to employers remaining reluctant to add to payrolls.

The economy has recovered a fraction of the more than 8 million jobs lost in the recession. Economists say job growth of between 250,000 and 300,000 a month is needed to have a sizable impact on the pool of 13.7 million unemployed Americans.

That will probably keep the Fed sidelined for a while.

Even if we have an acceleration in the pace of job growth, there still remains significant slack in the labor market, said Millan Mulraine, senior macro strategist at TD Securities in New York.

Given the high levels of unemployment and the fact that the duration of unemployment is still unacceptably high, the Fed will remain on the sidelines at least for the next year before they start contemplating tightening monetary policy explicitly.

The Fed is expected to complete its $600 billion government bond-buying program, which ends in June.

Employment in March will be concentrated in the private services sector. Payrolls in the goods-producing industries should see further gains, driven by manufacturing.

The construction industry probably saw a second straight month of gains, but below February's, as it continues to suffer a weak housing market.

The employment report is also expected to show the average work week edging up to 34.3 hours and hourly earnings rising 0.2 percent after being flat in February.

(Reporting by Lucia Mutikani; Editing by Dan Grebler)