U.S. job growth likely modest but steady in January

Hiring by U.S. employers likely held steady in January, pointing to modest growth in the economy despite worries that budget battles in Washington could derail the recovery.

Nonfarm payrolls are expected to have risen 160,000, a marginal step up from December's 155,000 job gain, according to a Reuters survey of economists. The unemployment rate is seen holding steady at 7.8 percent.

Many economists think companies would create more jobs if Washington could resolve a seemingly intractable fight over how to tame the federal budget deficit.

Politicians reached a deal this month to soften the blow from a so-called "fiscal cliff" of austerity measures, but the government is still on track to hurt the economy by slashing spending in March.

A deadlock over spending plans that could lead most government operations to shut down in March also looms, as does the possibility the government might default later this later year and trigger another recession.

"The removal of the uncertainty posed by the fiscal cliff is unlikely to prompt a surge in hiring when there remains so much political uncertainty," said Paul Dales, an economist at Capital Economics in London.

The Labor Department will release the January jobs data on Friday at 8:30 a.m. (1330 GMT).

The recent pace of hiring has been too slow to quickly bring down the country's jobless rate or convince the Federal Reserve, which meets on Wednesday, to abandon its easy money policies.

If economists are on the mark, January would mark another month of slow but steady gains in the long recovery from the 2007-09 recession, reinforcing expectations the Fed will continue buying assets into next year in a bid to lower interest rates and boost the economy. A report due on Wednesday is expected to show economic growth slowed in the fourth quarter.

Still, the expected payroll reading would match the average gains posted over the six months through December, suggesting some of the economy's underlying momentum carried over into the New Year.

Indeed, many economic indicators have pointed to growing economic strength. Retail sales were buoyant in December, and the number of new jobless claims has recently fallen to the lowest in five years.

In addition, a mild winter could be helping to boost employment at construction sites.

"Unseasonably mild weather and improving jobless claims point to an above-trend result," economists at Morgan Stanley, who forecast 185,000 new jobs in January, said in a research note.

Manufacturing employment likely grew by 10,000 jobs in January, according to the Reuters poll. Average hourly earnings are seen edging higher and the length of the average workweek is seen steady.

As part of the employment report, the government will release revisions to recent payroll estimates based on analysis of tax receipts from March 2012. This data could help explain why the U.S. jobless rate fell more than many expected in 2012 given lackluster growth in payrolls, said Jim O'Sullivan, an economist at High Frequency Economics in Valhalla, New York.

On average, payrolls added 153,000 jobs a month last year, a level many economists consider just enough to keep up with population growth and not enough to explain the 0.5 percentage point fall in the jobless rate during the year.

In a preliminary estimate given in September, the Labor Department said the economy likely created 386,000 more jobs than initially thought in the 12 months through March last year.

With the data on Friday, the government will provide a firmer reading on the employment level for March 2012 and use its new understanding on the health of the labor market to revise its figures for other months as well.

A big upward revision of payroll gains, especially in the second half of 2012, would point to a stronger trend in job creation, helping to explain why the jobless rate tumbled last year and perhaps making future declines more plausible.

"If the trend in employment is 180,000 or 185,000 a month instead of 160,000 a month, it's certainly easier to get the unemployment rate down," said O'Sullivan.

(Editing by Tim Ahmann and James Dalgleish)