Dec. Jobs Report Seen Stronger Amid Hurricane Reconstruction

Healthy new U.S. job growth likely continued into December as rebuilding after last year's hurricanes gained steam and steady economic growth laid a foundation for more job gains, analysts said.

An estimated 200,000 jobs were added to payrolls last month and the unemployment rate held at 5 percent for a third month in a row, economists surveyed by Reuters forecast. There were 215,000 jobs added in November, the government said a month ago.

The Labor Department is scheduled to issue its December employment report on Friday at 8:30 a.m. EST amid prospects so promising for further labor market gains that they are creating some unease about inflation risks.

"After Katrina caused massive payroll losses (perhaps on the order of 300,000), employment should advance at an above-trend pace over the next several quarters, as workers displaced by the storm gradually find jobs," RBS Greenwich Capital said in a market advisory note to clients.

RBS Greenwich expects December payrolls to increase "by around 200,000."

Hurricanes Katrina and Rita, which struck the Gulf Coast in late August and September, caused huge damages and dislocations, damping employment gains in September and October before the November rebound to a trend near or slightly above normal.

A rebuilding effort still is getting into high gear, spurring job creation in key sectors like construction. Employment growth, along with a generally strong rate of overall economic activity and despite modest gains in incomes, is giving rise to some worry about prices.

Average hourly earnings rose 0.2 percent in November, and economists are expecting the same growth in December.

The concern about prices was reflected in minutes from the Federal Reserve's December 13 meeting of its policy-setting Federal Open Market Committee, which were issued on Tuesday.

"In the view of a number of participants, the economy was possibly producing in the neighborhood of its potential, and the persistent strength in spending of late suggested that resource markets could tighten further and inflation pressures build," the Fed said.

The U.S. central bank has lifted short-term interest rates steadily since mid-2004, to 4.25 percent at its December 13 meeting, but speculation is mounting that it may be near the end of its campaign. The minutes said the number of additional rises "probably would not be large," though it added that depended upon incoming data.

In addition to tighter labor markets, energy costs have risen substantially over the past year and those charges still are working their way through production processes and final prices.

According to the minutes, Fed economists advised policy-makers that the pace of growth might slow from 2005's rate, "but remain solid, with output staying near the economy's potential over the next two years."

Economist Bill Dudley of Goldman Sachs and Co. in New York forecast a December jobs rise of 250,000 along with a decline in the unemployment rate to 4.9 percent. He cautioned that may mean more Fed rate rises than some market participants now anticipate.

"That is because it is highly likely that job gains will be way above the 110,000-120,000 per month pace that the FOMC would judge as sustainable" without sparking inflation, Dudley said in a market note.