If Friday's jobs number disappoints, this factor will be blamed

Big jobs Friday preview

August is notorious for disappointing the market when it comes to job creation, and this one may be no exception.

A handful of prominent Wall Street economists expect job creation to fall short of the 180,000 consensus estimate, as it so often does. In fact, the month has missed estimates 9 of the past 12 years.

In addition to being a letdown, the August number is notoriously volatile. On average since 2011 — the year the initial reading showed zero jobs created — the number has been pushed up by 71,000 after the Labor Department finishes its revisions.

Goldman Sachs is one of the firms bearish on Friday's nonfarm payrolls report, and it has a reason why it believes the number is so unreliable.

"Our below-consensus forecast primarily reflects seasonal quirks specific to the August payroll period," Goldman economist Elad Pashtan said in a note to clients. "In our view, the initial August weakness and subsequent revisions reflects seasonal adjustment challenges related to shifts in the timing of school calendars."

In other words, figuring out the job situation depends on when school opens and education personnel head back to the classroom.

It's a new wrinkle in a long-standing debate on Wall Street over how the government counts both the employed and unemployed. Critics point to nuances such as how the underemployed and those who have not looked for work in the past months are not included in the headline jobless rate, and say seasonal adjustments often provide big upward jumps to the employment rolls.

As for the Friday report, Goldman thinks the initial count will show 165,000 new jobs. That estimate puts it on the low end of forecasts on the Street that range from 150,000 (JPMorgan Chase) to 255,000 (Societe Generale).

Some point to the strength of the past two months (292,000 and 255,000, respectively) as an indicator that the August number may not be so bad. However, last year's August count was 150,000, a number that actually was reduced from the initially reported 173,000. The final number was spot-on the average of August job creation since the recession ended in 2009.

Left to sort it all out will be the Federal Reserve, which is watching economic data closely for clues on whether the coast is clear for another rate hike later this month. The central bank already has to digest negative shocks from a manufacturing decline and flatlining construction, in reports that came out Thursday.

However, the Fed may be willing to overlook a weak August jobs number considering how unreliable the report can be.

"The August employment report will be an important input into the FOMC decision," Pashtan wrote. "A below-consensus number may well lead the bond market to reduce its expectations for a rate hike, but it is possible that Fed officials would look through moderate weakness given 1) the strength of the June/July payroll gain, 2) their sub-100k estimate of the 'breakeven' payroll gain, and 3) the well-publicized tendency for weak first prints in August."

Current market expectations are that a move at the Sept. 20-21 meeting is unlikely, with just a 24 percent chance. The next best possibility for a hike is in December, which has a 55.9 percent chance, according to the CME's FedWatch tool.

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