Market Insider

Hiring in June seen picking up

A look at employment trends

Economists expect job creation in June to have been about the same as May but there are some anecdotal signs that it may have even been a bit better.

The consensus is for 215,000 nonfarm payrolls, off slightly from May's 217,000, and an unchanged unemployment rate of 6.3 percent.

"I'd say 275,000. I think underlying jobs growth, subtracting for the ups and downs in the data is probably around 225,000, which is an improvement from what we've been getting for the past three years, and actually quite strong—twice the rate to maintain a stable rate of unemployment so unemployment should come down quickly," said Mark Zandi, chief economist at Moody's Analytics.

A sign hangs in the window of a clothing store on June 6, 2014 in San Francisco, California.
Justin Sullivan / Staff | Getty Images News

Moody's compiles ADP private sector payrolls data, and that number showed a gain of 281,000 jobs Wednesday. While the number does not always correlate with the government jobs report, traders said it helped inflate expectations for the June employment report because it has been a better directional indicator lately.

But even if the report is stronger and shows continued 200,000-plus job growth, the market will also focus on things like the number of discouraged workers and the participation rate, at 62.8 percent in May.

"I think the key is wage growth. We need to see some wage growth, and I think we're getting pretty close. Once that happens peoples' perception of the job market will change dramatically," Zandi said.

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Another positive sign for the report is that the unemployment claims in the week of the survey for the jobs report were lower at 314,000. Other positive signs included the solid employment data in the ISM manufacturing report, unchanged at 52.8, and a small business survey Wednesday that showed job gains.

The National Federation of Independent Businesses reported owners "increased employment by an average of 0.05 workers per firm in June… the ninth positive month in a row and the best string of gains since 2006."

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An improved trend in small business hiring was also reflected in a survey by Intuit. Its survey of businesses with fewer than 20 employees showed small business employment increased 0.1 percent in June.

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Susan Woodward, Intuit financial economist and founder of Sand Hill Econometrics, said this is the fourth month in a row that small businesses showed improvement, totaling about 20,000 per month.

"We're seeing a pickup in hiring but not in wages," said Woodward, whose model forecasts small business hiring. "…What happened in the last couple of months is that employment has picked up in a way we have not seen it pick up since we started to recover. The recovery in small business employment has been somewhat pathetic."

While the economy has added back the jobs lost in the Great Recession, small business has not and still has a ways to go. "Small business is 900,000 short of what it was at its peak and that's on a group of about 20 million people so the 900,000 is almost 5 percent still," she said.

Woodward said she believes one of the trends responsible for the shortfall in small business workers is the migration of workers to small establishments, or small work places, like a Starbucks or other chain, that is actually owned by a big company.

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"There's been all this discussion of the demise of small business without any discussion of what's taking its place," she said. "The franchises are doing better than the independents and the corporate branches are doing better still."

She points out that while small business jobs are still lagging, the employment in small establishments owned by big companies has actually added workers and is just under 10 million, compared with 9.1 million workers before the financial crisis.

Zandi said the pickup in small business hiring was apparent in the June ADP report, with small businesses with 49 or fewer employees, adding 117,000 workers, and large businesses with over 500 workers, adding 49,000.

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"The large companies did most of the heavy lifting early in the recovery. Small businesses are really driving the train now," he said. "In the last six months, it really seems to have kicked into a higher gear."

Mesirow Financial chief economist Diane Swonk expects 210,000 nonfarm payrolls, and she says there are a few things to watch that are lingering impacts from the unusually harsh winter weather.

"A lot of schools got extended because of the snow days so the usual seasonals (layoffs) for teachers and kids returning to the labor force are going to be warped by that. That could give us some upward bias in educational hiring and could hold down the participation rate of teens even further. It's already low," she said. The trend could then reverse in July, with delayed teacher layoffs.

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Swonk said she'd like to see some of the positives in the last jobs report to continue, like the hiring in professional and business services.

"We had professionals and engineers being hired…if that shift continues it's a much more fundamental broad-based recovery, and that's what we need and that'll bring some college grads back into the equation that had been marginalized," she said.

Besides the 8:30 a.m. employment report, international trade data for May is also released, as are unemployment claims. ISM nonmanufacturing data is reported at 10 a.m.

The stock market closes at 1 p.m. Thursday ahead of the Fourth of July holiday, when markets will be closed.

—By CNBC's Patti Domm