By Lucia Mutikani
WASHINGTON (Reuters) - U.S. hiring likely snapped back from a three-year low in January and kept the unemployment rate steady at 6.7 percent, which could ease investors' fears the economy is slowing sharply.
Nonfarm payrolls are expected to have increased by 185,000 last month, according to Reuters' poll of economists, after unseasonably cold weather in December limited gains to 74,000.
"The anticipated acceleration in job growth reflects in part the unwinding of the weather-induced weakness last month, and is consistent with other indicators which are pointing to continued positive momentum in the economy," said Millan Mulraine, deputy chief economist at TD Securities in New York.
The U.S. Labor Department will release its closely watched employment report on Friday at 8:30 a.m. (1330 GMT).
A report on Monday showing a surprise drop in factory activity to an eight-month low in January rattled investors and stoked fears of a significant cooling off in growth after the economy's robust performance in the second half of 2013.
With frigid temperatures largely blamed for manufacturing's weak performance, some economists warned that hiring would probably not bounce back by as much as many anticipated.
Extremely cold weather and severe winter storms descended on large parts of the country in January, disrupting activity in weather-sensitive sectors such as construction.
"While conditions improved for the survey week the rest of the month was quite cold," said Michelle Meyer, an economist Bank of America Merrill Lynch in New York.
"In some sectors such as construction, builders may be hesitant to start new projects given harsh weather conditions, creating delays in the supply chain."
The report will grab the attention of Federal Reserve officials, who appeared to shrug off December's weak hiring when they announced further cuts to their monthly bond purchases at a meeting last month.
Some economists say a second straight month of weak hiring, even weather-related, could prompt the Fed to hold off on further reductions. Economic growth is expected to moderate a bit in the first quarter, after a spurt in the second half of last year that was driven by inventories, consumer spending and trade.
Economists estimate that cold weather reduced payrolls in December by between 50,000 and 100,000.
In its report on Friday, the government will publish revisions to data on payrolls, the workweek and earnings going back to 2009. Last year, it said the revisions to this data, which is drawn from a survey of employers, would likely show that 345,000 more jobs than previously thought were created in the 12 months through March 2013.
The unemployment rate, which tumbled 0.3 percentage point in December to its lowest level since October 2008, is expected to have held steady last month. Economists, however, would not be totally surprised if it fell gain, given that jobless benefits for more than one million people expired at the end of December.
"Unemployment would have declined to the extent that people who lost their benefits either found jobs or left the workforce," said Peter D'Antonio, an economist at Citigroup in New York.
On the other hand, there is also a chance that the participation rate, or the proportion of working-age Americans who have a job or are looking for one, could rebound and lift the unemployment rate. The participation rate fell 0.2 percentage point to 62.8 percent in December, returning to the more than 35-year low hit in October.
As is the case each year, the January report will incorporate new population estimates. This means the employment and labor force figures that are derived from the government's survey of households will not be comparable to December.
Hiring in January is expected to have been all in the private sector, with government payrolls holding steady.
Manufacturing jobs likely rose, although a report on Monday from the Institute for Supply Management that showed a decline in factory employment suggested forecasts could be off base.
Employment in the retail sector probably slowed after strong increases in the prior months.
"We think the year end run-up in retail hiring has run its course," said D'Antonio.
Most economists think construction payrolls bounced back from their weather-depressed December level, although January's relentless cold may have pushed them down again.
Average hourly earnings, which were held back as the weather reduced hours for workers, likely rose by 0.2 percent after edging up 0.1 percent in December. The length of the workweek is seen steady at an average of 34.4 hours.
(Reporting by Lucia Mutikani; Editing by Diane Craft)