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Jobless claims next up before employment report

Weekly jobless claims Thursday should catch the attention of markets that are fixated on Friday's employment report.

Released at 8:30 a.m. ET, the claims are expected to total 335,000-340,000, about flat with last week's 339,000. While they have no bearing on the December report, claims are viewed as a barometer for the health of the jobs market.

"Claims will be important. If they come in below 325,000,that would be pretty good anecdotal levels," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi.

Trader on the floor of the New York Stock Exchange
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Trader on the floor of the New York Stock Exchange

Economists are looking for a total increase of 196,000 nonfarm payrolls and an unchanged unemployment rate of 7 percent when the government releases the December employment report Friday, according to Reuters. That compares with 203,000 nonfarm payrolls last month.

"Jobless claims is a leading indicator, whereas the jobs report is a lagging one, so I want to see claims continue to move lower. The ADP report signaled what might be an above-consensus release coming out of BLS Friday," said Mark Luschini, chief market strategist at Janney Montgomery.

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The ADP private sector jobs data, released Wednesday, encouraged some economists to boost their expectations for the December jobs report. Citigroup economists raised their forecast to 165,000 from 125,000, and Deutsche Bank economists, on the high end, went to 250,000 from 200,000 .

Rupkey expects 190,000 and did not raise his forecast.

He also said that the Fed minutes, released Wednesday, did nothing to illuminate whether Fed officials will change their target of 6.5 percent unemployment before raising short-term rates. Economists say the rate could move toward that target more quickly than the Fed might expect.

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The Fed also did not clarify the speed at which it would wind down bond purchases, as some had traders had hoped. The result is that the markets will continue to fixate on economic reports and handicap how the central bank might interpret them.

"We're very much data-dependent," Rupkey said. "That's the message, and still the jobs report is front and center. Unfortunately, ADP may have done us a disservice by winding everyone up. ... They're setting our expectations too high."

At its last meeting, the Fed decided to trim its $85 billion monthly bond-buying by $10 billion this month, and it is expected to maintain that pace at subsequent meetings until the purchases end altogether.

Meanwhile, some economists say the employment data show signs of turning, and that could have a bearing on the Fed's timing.While the nonfarm payrolls reports have been at a consistent level in recent months, revisions have shown an improved picture.

"It's the trend in employment that matters, and the trends have been good," said Mesirow Financial Chief Economist Diane Swonk. "What matters to me is not the number but also that the revisions have been good. In an economy you tend to miss stuff overtime. You miss turning points. These numbers aren't very good at picking up turning points. They only catch it in the revisions."

A turning point in the summer that was masked by the impact of the government shutdown in October, Swonk said. She had been looking for 200,000 nonfarm payrolls and was not revising her forecast after the ADP number.

"I think we're going to have a good composition again," she said. "I think we're going to have some manufacturing gains. The ISM did surprise on the upside."

As for the Fed, it may be prodded by an improving economy.

"How fast they ultimately taper will be data-dependent, and if we keep getting these upside surprises it could be faster than people think," Swonk said, addiing that she expects the Fed to wind down its bond-buying by August.

Swonk said second-half 2013 could show the best back to back quarterly growth since 2005.

Besides claims, Challenger layoff data is released Thursday.There are also meetings of the Bank of England and the European Central Bank,which is not expected to take action.

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Chain stores are expected to announce monthly sales data, while will be watched closely as retailers discuss the impact of December holiday sales. Thomson Reuters said the chain stores it monitors are expected to show a 2.7 percent increase.

There is a 1 p,.m. auction of $13 billion in 30-year bonds.

Earnings are expected from Family Dollar, Acuity Brands and Supervalu ahead of the bell, and Chevron reports interim results after the bell. Alcoa is also releasing earnings then.

Stocks had another choppy day, with the Dow down 68 at 16,462, and the S&P 500 off less than a point at 1,837. The Nasdaq was positive, rising 12 to 4,165.

The S&P is now off a bit more than half a percent since the New Year started.

Carter Worth, chief technician at Oppenheimer Asset Management, said a weak start to the month increases the odds that January will be negative from 30 percent to 60 percent. Wall Street follows the old adage "so goes January, so goes the year," and a negative month would be a concern even though many analysts expected the market to pull back after last year's 30 percent gain.

—By CNBC's Patti Domm. Follow here on Twitter @pattidomm.

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.