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By Lucia Mutikani
WASHINGTON (Reuters) - U.S. employers likely stepped up hiring in August, potentially paving the way for the Federal Reserve to start cutting back its gigantic bond purchases program later this month.
Non-farm payrolls are expected to have increased by 180,000 jobs last month, according to a Reuters survey of economists, up from a gain of 162,000 in July. The jobless rate is expected to hold steady at a 4-1/2-year low of 7.4 percent as more people search for work, a sign of confidence in the labor market.
The Labor Department will release its closely watched employment report on Friday at 8:30 a.m. EDT (1230 GMT), little more than a week before the Fed's September 17-18 policy-setting meeting.
Many economists believe the U.S. central bank will decide at that meeting to begin paring back the $85 billion in bonds it has been buying each month to keep interest rates low.
"At this point the game plan is to start the tapering at the September meeting," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York. "Even a weaker-than-expected report this week won't stop that game plan, given the weight of evidence suggesting that the labor market is improving."
Hinting at an improvement in job gains last month, the number of people filing new claims for state unemployment benefits trended lower in August. The four-week average of claims neared a six-year low during the payrolls survey week.
Separately, a survey from the Conference Board showed consumers' outlook for the labor market was upbeat in August, with an increase in the share of those anticipating more jobs and a decline in those expecting few employment opportunities.
"The data we have in hand so far for August suggest that things got incrementally better for employment," said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York.
MAY EASE GROWTH CONCERNS
If economists' forecasts are correct, the jobs report could ease worries about economic growth slowing in the third quarter, concerns that were stoked by weak July data on consumer spending, home building, new home sales, durable goods orders and industrial production.
The economy grew at a 2.5 percent annual pace in the April-June period and many economists expect an acceleration in momentum in the second half of the year. Job gains this year have averaged 192,000 per month.
Other details of August's employment report are expected to be fairly encouraging, with an anticipated bounce in average hourly earnings and the length of the average workweek, which both slipped in July.
Average hourly earnings are forecast to rise 0.2 percent after dipping 0.1 percent in July. That decline was largely dismissed as payback for a hefty 10 cent increase in June, which was the biggest monthly increase since 2008.
"If you look at the year-over-year (figure), it really has been pretty stable. I don't see any evidence that the trend has slowed," said High Frequency Economics' O'Sullivan.
The length of the workweek was expected to rise back to an average of 34.5 hours from a six-month low of 34.4 hours in July.
The private sector is expected to again account for all the anticipated job gains in August, with government payrolls flat.
Shrinking federal government employment, against the backdrop of budget cuts in Washington, is being offset by an easing in layoffs at state and local governments.
Within the private sector, factory employment is expected to have increased for a second straight month but any gains will probably be small as employers instead increase hours for existing workers.
"On the manufacturing side, we might see a broad pickup in hours because of the ramp up in orders we have seen in both July and August," said RBC Capital Markets' Oubina.
"That should start filtering into higher production and higher employment, (but) given the current environment, you will probably see a ramp up in the hours worked as opposed to a ramp up in actual head count."
Construction payrolls likely fell again in August. Gains in residential construction employment are being offset by declines in heavy and civil engineering construction. Non-residential specialty trade contractors are also seeing a decline in jobs.
Another month of strong job gains is expected in the retail sector, with leisure and hospitality employment also seen solid.
(Reporting by Lucia Mutikani; Editing by Krista Hughes)