Wall Street has lowered expectations for the pace of employment growth following higher than forecast jobless claims last week, but the latest jobs data due Friday won't tell investors much about the economy's momentum, JPMorgan Chase senior economist James Glassman said on Thursday.
Economists polled by Reuters expect employers added 200,000 jobs last month after hiring 236,000 workers in February. The unemployment rate is seen steady at 7.7 percent.
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The Labor Department is set to release the data at 8:30 a.m. EDT (1230 GMT) on Friday.
"The Street already has ratcheted down its expectations for tomorrow after the ADP number, so we'd be surprised by anything over 160,000," Glassman told the Reuters Global Markets Forum. "I've been thinking 175,000 to 200,000, counting on a gradual acceleration in construction employment, but ADP took a little steam out of that story."
The ADP National Employment Report said on Wednesday that private employers added 158,000 jobs last month, falling short of economists' expectations for 200,000 new jobs. The hiring was below the lowest estimates in a poll by Reuters and was the smallest gain since October.
Initial claims for state unemployment benefits increased 28,000 last week to a seasonally adjusted 385,000, the highest level since November, the Labor Department said on Thursday.
While job growth may have eased in March, it isn't likely to change the U.S. Federal Reserve's view on whether or not it will continue its plan to stimulate the economy, Glassman said.
Instead, the central bank will be looking forward to the economic effects of $85 billion in government spending cuts and a hike in U.S. payroll taxes that took effect last month.
"They want to get through the next couple of months ... to see how much trouble the hike in the U.S. payroll tax and sequestration is causing."
The Fed is buying $85 billion in Treasuries and mortgage-backed securities every month to keep long-term interest rates low and spur employment. The central bank has said it will continue the program until the labor market improves.
Nevertheless, a pickup in the U.S. housing sector and narrowing risk spreads may prompt the Federal Reserve to start scaling back its asset-purchasing program sometime this year, Glassman said. He said the economy is recovering and could speed up to a 3 to 4 percent pace of growth by 2015.
Glassman said investors should be flexible in coming months before accepting that the economic recovery is gaining traction.
"I'd bet on the pedal-to-the-metal for a while, because the Fed believes the opportunity cost of an underemployed economy is enormous," he said.
"The Fed is willing to err on the cautious side, because the economy is a long way from full employment and because inflation is below its 2 percent long-run target."
If the Fed does scale back, Glassman said investors will likely rush to finance.
"Everyone knows that mortgage rates are artificially low and would see signs of movement by the Fed as a reason to get off the fence, especially with houses now historically cheap," he said.
Other countries have recently embarked on monetary easing programs. On Thursday, Bank of Japan Governor Haruhiko Kuroda committed to an aggressive open-ended asset buying program to expand the monetary base to 270 trillion yen ($2.9 trillion) by the end of 2014.
While some Fed policymakers suggested the Bank of Japan's move could help economies around the world, Glassman said its effect on the U.S. easing program would be minimal.
"What Kuroda is doing in Japan, and it is a long time coming, only indirectly drives the Fed," he said. "The Fed's asset purchases will be driven by the performance of the U.S. economy - starting to do well - and not by a need to match asset purchases elsewhere."
(Reporting by Steven Norton; Editing by Walden Siew and Phil Berlowitz)