No Excess in Labor Market

While reasons for more interest rate hikes are mounting in the eyes of some central bank officials, they certainly aren't evident in the labor market.

Although job growth is expected to have picked up in December from a sluggish pace in the prior month, the upcoming employment report is likely to be mediocre at best.

On average, economists are predicting that 175,000 new jobs were created last month, after 112,000 were added in November. About 150,000 jobs are needed each month just to keep up with the growth in the labor force.

Vincent Boberski, senior economist at RBC Dain Rauscher, thinks the consensus estimates are overstated by about 45,000, saying the deceleration in corporate profits is making managers leery about hiring.

"The markets should begin to see more evidence of that emerging caution over the next month or so as companies report for the fourth quarter, and we should see it reflected in Friday's payroll report," he said.

Thomson First Call predicts that corporate earnings will rise 15% in the fourth quarter, down from almost 17% in the third quarter and more than 20% in the first six months of 2004.

Richard Yamarone, director of economic research at Argus Research, also believes that the pace of job creation has been uninspiring, with just 65,000 new jobs added to the payroll last month.

"I started talking to a lot of people over Christmas saying we're not firing but we're not hiring either," he said.

A number of private surveys seem to support that conclusion. The employment components of the Institute for Supply Management's manufacturing and nonmanufacturing surveys fell last month but remained in positive territory.

Yamarone estimates that retailers added about 15,000 positions in December while the manufacturing sector shed about 20,000 jobs after 5,000 were lost in November.