GOLDMAN: 3 reasons why the jobs report could be great - and 4 reasons why it might stink

On Friday morning the BLS will release the February jobs report.

Expectations are for the report to show nonfarm payrolls grew by 235,000 while the unemployment fell to 5.6% in February.

Goldman Sachs is looking for payroll gains slightly below expectations, forecasting 220,000 for payrolls gains with the unemployment rate falling to 5.6%.

In a note to clients ahead of the report, Goldman economist David Mericle outlined four reasons that could be indicating a stronger than expected report, and three reasons why the report might disappoint.

Here are Mericle's upside surprises:

• Service sector surveys. The ISM nonmanufacturing employment index rose 4.8pt to 56.4 in February, following an almost equally-large decline in January. Because most responses to the survey are received late in the month, both the current and previous month surveys tend to be relevant to payrolls, suggesting a more modestly positive signal in this case. The employment component of the Markit services PMI also improved slightly in February. Among the employment components of regional Fed surveys, New York and Dallas improved on the month, while Richmond declined. Service-sector employment gains slowed to 209k in January and averaged 213k over the last year.
• Jobless claims. The four-week moving average of initial jobless claims leading into the payroll reference week fell 24k to 283k.
• Online job ads. According to the Conference Board's Help Wanted Online (HWOL) report, online job ads rose in February. Gains were seen across all major regions of the country and were largest in the transportation, food, sales, and professional services categories.

And why the report could disappoint:

• Manufacturing employment indicators. The employment components of the manufacturing surveys weakened in February. The employment component of the ISM manufacturing index fell 2.7pt to 51.4 and the employment component of the Chicago PMI dropped 10.3pt to 49.8, a move into contractionary territory. Among the employment components of the regional Fed surveys, New York, Richmond, Kansas City Fed, and Dallas softened on the month, while Philly improved. Payroll employment growth in the manufacturing sector slowed to 22k in January and averaged 19k over the last year.
• Job availability. The Conference Board's labor differential-the net percent of households reporting jobs are plentiful vs. hard to get-worsened by 1.8pt in February to -5.7. Despite the decline, the index has improved considerably over the last year.
• Weather. Our method for estimating the impact on payrolls of snowstorms and temperature deviations from seasonal norms suggests a hit from harsh weather conditions in February. The Regional Snowfall Index recorded four major snowstorms during this period, and we expect these storms to have a substantial impact on activity. Temperatures remained warmer than usual for the country overall in the four weeks leading into the February survey week. While not relevant for the February report, the final two weeks of February saw the two most extreme (coldest) weekly deviations from average temperatures in the 18-year history of the data, suggesting that weather conditions may be a factor in next month's report as well.
• Job cuts. According to the Challenger, Gray and Christmas report, job cuts fell 4k on a seasonally-adjusted basis in February, but remained slightly on the high side relative to the recent trend. Because announced job cuts are a leading indicator, the modest increase over the last couple of months is a negative signal for payrolls. Announced job cuts in the energy sector remained elevated for a second month, softening a bit from 20k in January to 16k in February.

You can find our preview here, and of course, we'll have complete coverage of the report on Friday morning.