The other big thing you need to watch Friday

One thing the slow-growing U.S. economy has done well is produce jobs, and economists expect to see another 200,000 jobs were created in December.

The monthly jobs report, usually the most anticipated data of the month, may take a back seat Friday to the market turmoil over China's economy and its weakening currency.

The report has also lost some power this month as a barometer for Fed policy, since the central bank is not expected to consider another rate hike until March. There will be two more employment reports and lots of other data before then.

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

Since the start of the new year, the S&P 500 has lost 4.9 percent, in the worst first four-day performance of any year ever. According to S&P Capital IQ, the S&P 500 has lost $864 billion since the year began. Stock futures were higher Friday, as markets stabilized around the world.

"To me, it seems the developments have set the stage for asymmetric risk in terms of market reaction. In terms of the report, I don't have a strong feeling about it in either direction," said Michelle Girard, chief U.S. economist at RBS. "We have a consensus number at 200,000. ... Hourly wages will bump up year over year. That's been well advertised."

Girard said the Fed may now be looking more to financial conditions because of the swift correction in equities and reactions in other financial markets. In September, the Fed held off hiking rates because of international developments and financial conditions. Now the economic data, aside from jobs, are weakening to the point where she expects just 0.5 percent growth in the fourth quarter, below Wall Street consensus above 1 percent.

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Fed officials have forecast four rate hikes for 2016, and the market has now priced in fewer than two full hikes.

"We ended the year on a softer note, cognizant of that, I might say there's perhaps some risk of a stronger surprise versus a weaker surprise" in the jobs data, Girard said. "I don't have a strong feeling of the reaction to the potential surprise. December is 50/50 either way in beating or missing. I do think the reaction will be muted."

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According to Thomson Reuters, economists also expect to see the unemployment rate unchanged at 5 percent and average hourly wage growth of 0.2 percent. There were 211,000 payrolls in November, and wages also grew 0.2 percent but economists say year-over-year comparisons for December should make annual wage growth come in at about 2.7 to 2.8 percent, stronger than the recent pace.

Ethan Harris, co-head of global economics at Bank of America Merrill Lynch, said he's looking for 225,000 nonfarm payrolls.

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"The labor market has tremendous momentum. None of the indicators we look at have weakened at all. Claims are low. The ADP survey was strong. The various consumer confidence surveys that ask about the job market are strong. The job market has a lot of momentum," said Harris. "The other story is the weather. December was the warmest December in history. Weather doesn't always affect the economy but it does stimulate jobs. There's a good case for a strong number."

Harris also mentioned that the wage number should look stronger. "For the equity market, it's a mixed blessing. it's good for the consumer but it also means pressure on costs," he said.

Markets have also been reacting to the 10 percent decline in oil futures, which drove West Texas Intermediate to a new 12-year low of $32.10. WTI futures were trading at $33.35 in evening trading. Oil has shrugged off heightened tensions in the Middle East this week, after Saudi Arabia's execution of a Shiite cleric. and markets seemed to have moved beyond North Korea's bomb test. The focus is squarely on China.

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"You're going to get a jobs number that will probably give a little bit of respite to the markets.," said Harris. "I think the markets are just overwhelmed with negative news. I don't think it's a question of any of these things being a really big deal. There's just too many blind shots to the markets."

JPMorgan economists also see sluggish Q4 growth, of just 1 percent, but they expect to see an above consensus jobs number.

"We're looking for a 215,000 gain which would give us a lot of comfort, while the U.S. growth numbers look like they're going to be soft, that business continues to hire," said JPMorgan's chief global economist, Bruce Kasman. He said there's a double-edged sword though, because productivity growth is weak and labor markets are tightening faster than GDP growth.

He also said the Fed will be focusing on financial conditions. "It's clear the Fed isn't going to be moving if we're in this kind of environment," he said.

The employment report is released at 8:30 a.m. ET, and wholesale trade data is reported at 10 a.m.

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