Why the Fed probably won't like the jobs report Friday

If the Federal Reserve is hanging its policymaking hat on the August jobs number, then it's likely to be disappointed and unmotivated to raise rates.

In large part, that's because the month has been tied for the worst of the year for job creation during the post-recession recovery and the noisiest in terms of how much the initial number differs from the final revision two months later.

So if the Fed is looking for confirmation from the labor market that the time is ripe for a rate hike, August could provide little solace. The report is always closely watched on Wall Street, but this month's will be especially important as many market-watchers believe a good number could propel the Fed to increase rates at the Federal Open Market Committee meeting Sept. 20-21.

"Investors are going to have to seriously consider the possibility of a September hike if we get a strong set of numbers on Friday," said Luke Bartholomew, investment manager at Aberdeen Asset Management. "Everyone had largely discounted this scenario until now, so we might get a wobble in risk markets if the numbers are good."

Market expectations are for payrolls to go up about 180,000 for this August in a year that has seen an average increase of 186,000. A report Wednesday from ADP and Moody's Analytics indicated that private companies added 177,000 new jobs in August, though the ADP and government reports can differ sharply.

LaVorgna said the labor market is headed toward a full-employment stabilization period where about 125,000 new jobs a month will be the norm. For August, he expects 160,000.

Whether that would be enough to move the Fed is tough to say. The market sees a 27 percent chance of a September rate increase, despite some recent fairly hawkish statements from Fed officials including ChairJanet Yellen. Traders assign a 55.4 percent chance to a move in December, according to CME calculations.

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