Weak October jobs report expected, but what if it's not?

People looking for work stand in line to apply for a job during a job fair in Miami on May 2.
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People looking for work stand in line to apply for a job during a job fair in Miami on May 2.

October's jobs report is expected to be one of the weakest of the year, distorted by the impact of the 16-day government shutdown.

Markets have been bracing for a poor report, expecting just 125,000 nonfarm payrolls. Traders say a weak number could mean the Federal Reserve would not cut back on its quantitative easing bond-buying program any time soon. But a good report, on the other hand, could be a shock to markets and trigger selling in both bonds and stocks if traders take it to mean the Fed could move sooner than expected.

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Economists are also looking for a temporary increase in the unemployment rate to 7.3 percent, according to Reuters. That compares to the 148,000 added in September and unemployment rate of 7.2 percent. If the number comes in as expected, or lower, it would be the slowest payroll creation since July's 89,000, and that was the weakest since June, 2012.

"It's going to add more confusion than clarity," said Diane Swonk, chief U.S. economist at Mesirow Financial. She expects to see a total 110,000 jobs and an unemployment rate of 7.4 percent. "I'm going to be looking where there's collateral damage, like people taking part-time work in place of full-time work, having to reduce their hours."

Economists also expect to see whatever weakness there is in the October report, to turn around and also be a distortion in the November report.

The ripple effect on the economy from the shutdown, which started Oct. 1 is unclear, but the effect on the labor market could have been wide and varied. For instance, Swonk is also looking to see if companies were hesitant to hire because of the uncertainty.

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There could also have been more losses in the private sector than expected, due to temporary layoffs at government contractors, or workers at businesses that served government operations, like for instance restaurants or stores near the shutdown national parks.

"I'm looking for a soft report. I'm kind of hoping it's stronger since the underlying trend in labor growth hasn't changed at all," said Deutsche Bank chief U.S. economist Joseph LaVorgna. He said 2.2 million jobs a year have been created in the last several years. "That works out to be 183,000 a month. We tend to have strength early in the year, that gives way to weakness that gives way to improvement in November and December."

LaVorgna expects to see 130,000 nonfarm payrolls, in line with the ADP private sector jobs report last week.

"We're doing ourselves a disservice by looking at the monthly trend. If you look at the three-month moving average, it peaked in February at 233,000. Since then it slowed to 143,000," he said. He said if there are revisions to the September number, they would likely be positive, which would also get the market's attention.

Nomura Americas Treasury strategist George Goncalves said he believes there are more risks that the number will be worse than expected, rather than better. The market may not move much on a poor report, but a better number would get a reaction. "It we got a 150,000 number, the bond market would sell off. 175,000 plus, you could start to see the market come under pressure," he said.

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No matter what, the number will trigger more speculation about when the Fed will taper its bond buying program. After last week's Fed meeting, traders viewed the Fed's comments as less dovish - not hawkish - but clearly less dovish.

That caused some speculation that the Fed might want to start paring back its $85 billion a month in bond buying after its December meeting. As of now, many firms expect the Fed to move in March.

Besides jobs data at 8:30 a.m. ET, there is also consumer spending and personal income. Consumer spending is at 9:55 a.m.

There are also several Fed appearances, including Fed Chairman Ben Bernanke who is on a panel at 3:30 p.m. on the financial crisis at an IMF event, along with former Treasury Secretary Larry Summers.

(Watch this: Fed only temporarily 'on hold': Economist)

Atlanta Fed President Dennis Lockhart separately speaks in Oxford, Miss. on the economic outlook at 12 p.m., and San Francisco Fed President John Williams speaks at 4 p.m. in Los Angeles on the economy and monetary policy.

Earnings are expected from Brookfield Asset Management, Cablevision, Telefonica, Covidien, Leap Wireless and Nippon Telegraph.

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