December's employment report should show broad-based job growth of more than 200,000, but it could pale in comparison to November's robust report and disappoint some of the loftier expectations in the market.
Economists expect a consensus of 240,000 nonfarm payrolls, and the unemployment rate is expected to fall to 5.7 percent, from 5.8 percent. November's 321,000 nonfarm payrolls could also be revised lower, and it's possible that a big monthly pop may have taken some jobs away from December.
"I guess I'm a little worried," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi. "I hate to be a hand wringer. The consensus is so high. We've been led down this path before, thinking things are OK, and then they're not." Rupkey expects to see 220,000 nonfarm payrolls.
John Canally, economist and investment strategist at LPL Financial, said the markets will be satisfied with a number that averages 225,000 for November and December. The jobs report is expected at 8:30 a.m. ET, and there is also wholesale trade for December, released at 10 a.m. ET.
Stocks bounced in part this week on optimism about jobs, after ADP reported that private sector payrolls grew by 241,000, slightly more than expected. However, economists say that does not necessarily translate to a better government report.
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The jobs report is particularly important since the markets are watching it for an update on the key labor indicators that could sway the Fed in its decision on when to start raising interest rates.
"Here's the thing. (Fed Chair) Janet Yellen came out very hawkish after the meeting and said basically she was only giving us a free pass for the next two meetings. If we have a very hot number, could easing be pulled forward? Sure it could, if she lines up her actions with her words," said Mike O'Rourke, chief market strategist at JonesTrading.
Stocks also got a lift Thursday on dovish comments by Chicago Fed President Charles Evans, who said the Fed should not be in a hurry to raise rates. Evans, a voting member on the Fed's policy setting committee this year will appear on "Squawk Box" Friday.
Canally said the market will be OK with a moderately higher or lower payrolls number. "I think you have a pretty wide range of where you're Goldilocks. It's anywhere from 180,000/190,000 to, let's say, 275,000. Anything way below that is a concern, and anything way above is a concern," Canally said.
Strategists say they are watching other facets of the employment report that could provide more clues as to what the Fed is thinking about the labor market. Wage gains is one area economists are watching, as well as the unemployment rate.
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There are also a series of revisions expected with Friday's report. "Normally, we just look at the revisions to October and November and look at the first print to December. Now we're going to look to the whole year of revisions," said Rupkey. "The unemployment rate is what the Fed is using to guide their policy. If it's lower, the closer it gets to 5, the Fed's got to start lifting rates. That's the biggest number to watch."
Joseph LaVorgna, chief economist at Deutsche Bank, said he expects just 200,000 nonfarm payrolls, in part because of seasonal factors.
He said the unemployment rate should dip below 5 percent at some point this year, but the number he is watching Friday is average hourly earnings. While still below the level the Fed would see as normal, it rose more than expected last month and there are signs wages could be picking up.
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"We were up 0.4 per cent last month and if we get anything like that in this one, it will make people nervous," said LaVorgna. He expects a gain of 0.2 percent.
Economists say it is too soon for the impact of falling oil to impact employment. Layoffs in the sector could show up in January's number. LaVorgna said the entire energy industry, including gas station workers, totals just 1.4 percent of total employment.
Mark Zandi, chief economist at Moody's Economy.com said he is particularly watching the participation rate, at 62.8 percent in November. He said more workers could join the workforce because of the availability of jobs, and that could affect the number of long-term unemployed but also push up the unemployment rate.
Zandi expects to see 250,000 nonfarm payrolls for December.
"It should be a solid report. indications are that the labor market is healing quickly," said Zandi. "We haven't kicked into full gear. There's one more gear for the labor market. The strongest gear is when there's 300,000-plus jobs for a period of time. We haven't hit that, yet, but we won't hit it until housing kicks into full gear."