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.

In recent weeks, auto suppliers like Dana ( DCN), Delphi ( DPH) and Visteon ( VC) have announced plans to lay off thousands of workers, and Yamarone said Ford ( F), General Motors ( GM) and DaimlerChrysler ( DCX) could cut jobs, too.

Nationwide, layoffs rose to 109,045 in December, according to outplacement firm Challenger, Gray & Christmas. Job cuts have now held above 100,000 for four straight months, the first time that has happened since early 2002.

Meanwhile, the four-week moving average of unemployment claims rose in the payroll survey week and the Conference Board's Help Wanted index recently slipped a point.

"Job growth continues to be sluggish, despite periodic reports that some companies are planning to add workers in the months ahead," said economist Ken Goldstein, a specialist in the labor markets.

On a more encouraging note, consumers saying jobs are "plentiful" increased to 19.4% in December from 17.1%, while those claiming jobs are "hard to get" fell to 26.4% from 28%, according to the Conference Board's consumer confidence survey.

For that and other reasons, economist Brian Jones of Citibank predicts that payrolls surged as much as 300,000 last month. On average, economists estimate that the jobless rate held steady at 5.4% and average hourly earnings are expected to rise 0.2%.

Federal Reserve officials believe the labor market is improving "gradually" and some members are becoming increasingly concerned about inflation and the low level of interest rates, the minutes of the Dec. 14 policy meeting show.

Still, Dain Rauscher's Boberski thinks the concerns are overblown.

"The number of new jobs this year will likely be half the number necessary to re-create pre-recession market conditions," he said. "It is safe to say that managers will be reluctant to try to attract and retain workers with sharply higher wages. That should be welcome news for policymakers eying inflation prospects for the new year."

In 2005, Boberski is looking for average job growth of 140,000 per month, about 10,000 per month lower than over the past year.

Michael Gregory, a senior economist at BMO Nesbitt Burns, is slightly more optimistic, calling for around 150,000 to 175,000 jobs per month in 2005.

"We're not talking boom times here," he said. "Growth is going to be modest."

Gregory thinks there is some downside risk to his payroll estimate of 185,000 on Friday, but he still believes the Fed is right to be concerned about inflation. While wages are likely to remain contained, productivity is slowing, the dollar is declining and commodity prices are high, he said.

So far, businesses have been unable or unwilling to pass high wholesale costs on to consumers. Indeed, Delta Airlines ( DAL) said Tuesday that it will cut fares by up to 50% in an effort to lure more customers. Analysts say the move could intensify price wars across the industry.

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