A labor market report to be released this Friday by the U.S. Bureau of Labor Statistics (BLS) is expected to show that the U.S. economy is adding jobs at a slower pace and that the unemployment rate remains steady.

The slowdown in U.S job growth is due to the interest rate hikes that have begun to take their toll on the nation's businesses, which have implemented layoffs and hiring freezes.

Tradingeconomics.com estimates that the U.S. economy added 220,000 jobs in December, down from 263,000 in November, with the unemployment rate remaining steady at 3.7%.

The BLS labor market report compiles the results of two surveys -- the establishment survey and the household survey -- to figure out the "employment situation" of the nation. It's published on the first Friday of the following month.

The establishment survey focuses on the demand side of the labor market. Itcalculates job growth, hours, and earnings on nonfarm payrolls, collected monthly from the payroll records of 144,000 businesses and government offices.

Job growth is inversely related to the unemployment rate, so the BLS measures it separately through the household survey, which focuses on the supply side of the labor market. It's a sample survey of about 60,000 eligible households, which gathers data on the labor force, employment, and unemployment.

After declining sharply to more than two million during the COVID-19 recession in the middle of 2020, the U.S. job growth has been recovering, reaching 714,000 in February 2022.

But the recovery slowed since then, following the weakening of U.S economic growth, which dipped into negative territory for a few quarters, a situation defined as a recession in the narrow sense.

Then there are structural impediments in the labor market and unfavorable demographics, which create the paradox of high unemployment co-existing with labor shortages. One of these impediments is ongoing childcare responsibilities and health concerns that may discourage some workers from joining the labor market.

The Federal Reserve closely monitors the employment situation to determine the "slack" in the labor market. That's a key metric the nation's central bank uses to determine how close or far the U.S. economy is from its dual mandate of maximum employment and price stability.

The slack in the labor market determines the pace of monetary policy during the FOMC meetings held every five weeks, which Wall Street follows closely.

A low slack in the labor market (high job growth) indicates that the U.S. economy is overheating, putting pressure on wages. In that case, it runs the risk of exceeding the Fed's inflation target, meaning that the Fed should continue to raise interest rates.

Kunal Sawhney, CEO of Kalkine Group, doesn't expect any significant relief on the interest rate hike front from the December labor market report, in view of the unemployment rate consistently being near record lows.

"Now, if you look at November month, the payroll and wage increase data were better than expectations, which is why now even the market expectations have ticked higher," he told International Business Times.

"There is a near consensus that the hotness of the labor market is set to last longer than anticipated, with the Fed's continued hawkish policy stance proving futile in this regard. But, on the other hand, the Fed's rate hikes have threatened a deep economic stagnation or downfall over the coming quarters."

That's what worries Dan North at Allianz Trade. "The December employment report is likely to show a continued slide in the labor market," he told IBT. "The economy is headed inexorably towards recession, which will show up in the December report."

North expects December job growth to slow substantially to 160,000 from last month's 263,000, well below the Tradingeconomics.com consensus of 220,000. The average for all of 2022 (through November) was 405,000 per month.

"This 'glide path' is typical of the labor market a few months ahead of a recession," North added. "In a few months, we may see a negative print on the NFP. "

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