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Friday's jobs data should show strong hiring trend

August's nonfarm payrolls are expected to show a seven month of 200,000 plus hiring, a sign that the labor market is finally on the mend

.Monthly employment reports are always said to be important on Wall Street, but the August report might actually be a big deal—not so much for what it says about the economy but what it might mean for the Federal Reserve.

Economists expect steady job growth—225,000 and a slight drop in the unemployment rate to 6.1 percent, according to Thomson Reuters. Last month, 209,000 jobs were created and the unemployment rate ticked back up to 6.2 percent.

The shocker would be if that unemployment rate fell even lower than 6.1 percent, highlighting an improving labor market while the Fed is still far away from moving to raise rates. The same discussion could be sparked if the 200,000 plus number expected proves to be a much larger number.

"Certainly, there's some chance things are picking up. We've seen some good data over the past month," said Stephen Stanley, chief economist at Pierpont Securities. "ISM is strong; construction spending is picking up… auto sales were strong. The consumer has been disappointing over the last few months, and that might be pickup up a little. There's reason to be upbeat about the economy moving forward, and you would expect to see some tightening in labor conditions."

Stanley expects to see 220,000 nonfarm payrolls and an unemployment rate of 6.1 percent. But he said everything that would signal the amount of slack in the labor market will be closely watched in the report, including average hourly wages.

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Job growth has been above 200,000 for the past six months, and economists expect it to continue to show strong growth but not accelerate closer to 300,000 unless the economy begins to grow at a faster pace.

The jobs number comes after a day in which the Fed figured high in Wall Street conjecture. The European Central Bank's surprisingly bold move Thursday to cut its key rates and embark on a securities purchase program spurred a debate as to whether the Fed might move faster to step back from its commitment to keep rates low for a "considerable period."

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There was also speculation on the other side, with some saying the Fed could hang on longer to its zero rate policy because of weakness in the global economy.

The Fed is expected to curtail the tapering of its bond buying program at the October meeting. So, the focus now is on what it will say at the September meeting and whether it could drop the language in its statement about the "considerable period" to give itself more flexibility should the economy—or labor market—strengthen considerably.

A now hiring sign is posted in the window of a clothing store in San Francisco.
Getty Images
A now hiring sign is posted in the window of a clothing store in San Francisco.

"The Fed has been gone from shooting a bazooka to pellets, and will run out of ammunition beginning in November," said Ward McCarthy, chief financial economist at Jefferies. "It seems like the baton of central bank leadership is being passed to the ECB, but it's also very difficult for me to see the Fed tightening monetary policy at a time when the ECB is aggressively easing monetary policy because growth is a global issue. It's not just the U.S. It's not just Europe."

Treasury yields moved higher, and the dollar strengthened against the euro, which dipped below 1.30 for the first time since July 2013. Strong ISM nonmanufacturing data, the best since 2005, also drove yields higher and helped lift stocks. However, the stock market reversed course and closed lower on the day.

Read More Cleveland Fed chief: Forward guidance change needed

CRT Capital, meanwhile surveyed bond market participants Thursday and found that 93 percent said the bond market would be higher by 17 basis points on average if the Fed dropped the words "for a considerable period of time" from the FOMC statement. The respondents also expected front end yields, specifically the 2-year, to move higher by an average 23 basis points. The majority—98 percent—expected a strong stock market selloff with an average decline of 7 percent. The majority also expected to see the dollar move higher.

Even though strategists said the Fed could drop the language, they also said it does not mean the Fed would necessarily move to raise rates before the middle of next year, which is what many Fed watchers forecast as a time frame.

The chatter about the Fed also picked up Thursday after Cleveland Fed President Loretta Mester, in her first public comments on policy, sounded hawkish and prompted speculation that she would like to see that language dropped from the Fed statement. "I believe using a calendar date at this point would be poor communication," she said.

Read MoreDraghi remarks are honey for euro bears: UBS CIO

She also echoed the comments of other hawkish Fed officials, who say the Fed should consider returning to normalcy because of faster-than-anticipated improvement in employment.

The economy is showing anecdotal signs of improving but even so, economists do not expect the employment report to show a break out from the trend of the last six months.

Tom Gimbel, CEO and founder of LaSalle Network, a Chicago staffing firm, said this summer was among the best periods for hiring since the financial crisis. "Our numbers in the third quarter look like they're going to be up 30 percent over a year ago, and 15 percent over the second quarter," he said, of job requisitions from employers.

Besides the jobs report, traders will be watching the events at NATO, as it discusses Ukraine. Boston Fed President Eric Rosengren speaks at 3:45 p.m. EST.

—By CNBC's Patti Domm

  • Patti Domm

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

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