* Nonfarm payrolls expected to increase 185,000 in May
* Unemployment rate seen steady at 3.6%
* Average hourly earnings expected to rise 0.3%
By Lucia Mutikani
WASHINGTON, June 7 (Reuters) - U.S. job growth likely increased solidly in May, with wage gains expected to pick up, showing strength in the labor market before an escalation in trade tensions that analysts have cautioned could pressure an already slowing economy.
With the trade war drums beating loudly in the background, a strong employment report from the Labor Department on Friday will probably do little to dial back market expectations that the Federal Reserve will cut interest rates this year. Fed Chairman Jerome Powell said on Tuesday the central bank was closely monitoring the implications of the trade tensions on the economy and would "act as appropriate to sustain the expansion."
President Donald Trump in early May slapped additional tariffs of up to 25% on $200 billion of Chinese goods, which prompted retaliation by Beijing. Last week, Trump said he would impose a tariff on all goods from Mexico in a bid to stem the tide of migrants across the U.S.-Mexican border.
Talks are ongoing to prevent the duties from kicking in at 5% on June 10.
Nonfarm payrolls probably increased by 185,000 jobs last month after surging 263,000 in April, according to a Reuters survey of economists. That would be well above the roughly 100,000 needed per month to keep up with growth in the working-age population.
"The trade wars the United States finds itself ensnared in are going to cause hiring to slow as business sentiment eases, productivity-enhancing capital expenditures fall off, and the damage eventually spills over into the consumer sector," said Joseph Brusuelas, chief economist at RSM US in New York.
Manufacturing payrolls will be watched closely for signs of the impact of the tariffs on the economy. Factory output has been weak and sentiment dropped to a 31-month low in May, with manufacturers worried mostly about the trade tensions.
But May's job growth could disappoint after a report on Wednesday from payrolls processing firm ADP showed the smallest gain in private payrolls in nine years last month. Another report this week showed a drop in online adverts by businesses looking for help.
The ADP report, however, has a poor record predicting the private payrolls component of the government's employment report because of methodology differences. Other labor market measures such as weekly applications for unemployment benefits and the Institute for Supply Management's services employment gauge have suggested solid employment gains in May.