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Payrolls' Balancing Act

With no rate hikes in sight, Friday's number can't be too high, and a low figure is unlikely.

Barring a cliff-dive, there's little chance that Friday's jobs number will put a damper on the stock market enthusiasm that carried the Dow Jones Industrial Average to an all-time high this week.

Wall Street has disregarded the inflation warning sounded by Federal Reserve Bank of Richmond President Jeffrey Lacker at the last two monthly meetings of the

Federal Open Markets Committee

. Lacker has been the lone voice of dissent on Fed Chairman Ben Bernanke's decision to stop raising rates, and after a monthlong drop in oil prices, traders are now betting that interest rates will move lower before they rise again.

That means that no jobs number is too big for stocks.

"The employment data is less important when we're in a place where we don't think the Fed is going to react much," says Arthur Hogan, chief market analyst with Jefferies. "The Fed is on the sidelines, which means we can't really get a number that's too strong. The only real bad news we can get is a number that's too light."

Since economists already have soft expectations, and lower oil prices are expected to embolden employers, investors see little chance that Friday's number will be too light. Currently, the consensus estimate for nonfarm jobs added to the economy in September is 120,000, while the unemployment rate is expected to hold at 4.7%.

Mickey Levy, chief economist with Banc of America Securities, says he's expecting just 100,000 new jobs.

"I wouldn't say that the labor market is softening," says Levy. "I would say that growth in the labor force is slowing, so 100,000 to 200,000 new jobs per month is more than sufficient to stabilize the unemployment rate. Businesses are generally being cautious and judicious about their hiring."

Last month, the Labor Department reported that 128,000 jobs were added in August.

Adding to some nervousness about a low number, the ADP National Employment Report, a newly launched measure of labor market activity, reported Wednesday that total nonfarm private employment grew by just 78,000 jobs.

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"These findings indicate continued sluggish gains in private-sector employment which,

according to our numbers, have averaged just 95,000 over the past three months," said Joel Prakken, chairman of the economic consulting firm Macroeconomic Advisers.

In response to the ADP report, Deutsche Bank cut its forecast for September payrolls in half to a gain of only 50,000 new jobs.

"We made the change largely because the ADP employment report was weaker than what we had implicitly been expecting," the investment bank said in a note to clients.

The worry is that the effects of a slumping U.S. housing market will soon start worming their way into the broader economy and result in a larger slowdown than investors are expecting.

To be sure, recent economic indicators have been choppy. This week, the Census Bureau reported an unexpected upturn in construction spending in August, but readings on the ISM manufacturing and non-manufacturing indices for September were weak.

Meanwhile, retail sales for September were

overwhelmingly strong, but chain stores are still noting sluggish sales of big-ticket items and some cautiousness about the economic environment for consumer spending.

"The economy is going to continue to grow at a moderate pace," says Levy. "My estimate

for nonfarm payrolls is in line with employment gains in the last handful of months, and it reflects a general cautiousness on behalf of employers."

Meanwhile, Levy predicts continued upward pressure on wage growth. Wall Street is expecting a 0.3% increase in average hourly wages for September, which would mark a jump from the 0.1% pace in August. More wage pressure could boost Lacker's position at the Fed.

"If we get a really strong number, it might raise some eyebrows at the Fed," says Levy. "It wouldn't bother me. We're seeing upward pressure on core inflation, but that's consistent with moderate economic growth and healthy gains in productivity."