Job market was strong in January, but government shutdown may have played havoc with the numbers

After December's surprise surge in hiring, economists expect January's payrolls may have grown by just about 165,000, and there's a chance that may even be too high.

In December, 312,000 payrolls were created and the unemployment rate was 3.9 percent. According to Reuters, the unemployment rate is expected to hold at 3.9 percent and average hourly wages are expected to rise by about 0.3 percent.

Economists said there are a variety of factors that could create noise in the January employment report, starting with the shutdown of the federal government. The payrolls number does not include 400,000 federal workers because they were furloughed with pay, but it could include some government contractors who went unpaid.

"The pace of hiring may have slowed, but I don't think we're going to see a massive decline in the number," said Joseph Song, Bank of American Merrill Lynch economist. "I think the markets are looking at it the same way. Any weakness could be faded."

Economists say there is a chance there could be some payback for the big jump in hiring in December, or that number could be revised lower.

"The surge in seasonal hiring is going to reverse. That's seasonally adjusted but it's larger than usual hiring," said Diane Swonk, chief economist at Grant Thornton. "We could have a larger than usual seasonal layoff. Leisure, hospitality, warehousing, transportation are all areas that had a big move up in November and December."

Swonk expects 170,000 jobs were added in January. "There's a real risk it could come in on the weak side because of all these factors, not just the shutdown but it's the revision to the mean," she said.

Swonk said the shutdown could have rippled through the workforce, impacting everyone from contractors working directly for government to employees at coffee shops near federal offices.

Economists said there is a chance unemployment could rise to 4 percent because of the fact that the furloughed federal workers are counted by the government as temporarily laid off, even though they ultimately should be paid.

"We had that big pickup in participation in December. It was young women. it could easily fall back. It wouldn't be surprising with the shutdown, some people didn't throw their hat in the ring," said Swonk.

The participation rate rises when workers return to the workforce and look for jobs. It can have a negative impact on the unemployment rate and cause it to rise.

"If the participation rate keeps ticking up, even a little bit, it could mean we have much stronger job growth for a longer period of time," said Brian Rose, Senior Economist Americas at UBS Global Wealth Management's Chief Investment Office.

Besides the 8:30 a.m. ET employment report Friday, there is consumer sentiment, construction spending, and ISM manufacturing at 10 a.m. Monthly vehicle sales are also reported Friday.

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