Of all the economic reports out there—and there are thousands—the one I follow most closely is the employment report.

Why? Jobs are the best single indicator of what the economy is doing. moreConsumers get their income from their jobs, so the employment report shows where that sector of the economy may be headed. For business, hiring requires both expanding demand and confidence that expansion will continue, so jobs also serve as a guide for that sector.

Digging a little deeper, jobs drive changes in consumer confidence and willingness to spend and borrow, which in turn can drive the housing market, the money markets, and much of the rest of the economy. Jobs really are the keystone of economic data, and this is why the monthly jobs report is analyzed so heavily.

Expectations For Strong Growth

The August jobs report is an unusually significant one. With the Federal Reserve potentially poised to raise rates, a strong jobs number could justify a September increase. With signs of weakness largely past, a positive report could ratify the renewed recovery and drive consumer confidence even higher. After two very strong months, expectations are for slower but still strong jobs growth, of around 180,000–190,000.

So far, this looks quite reasonable. The report by ADP, a major payroll processing firm, showed that 177,000 jobs were added last month, in line with expectations and very consistent with what the jobs report is expected to show. Initial jobless claims are still running at a rate of around 260,000–270,000, consistent with strong jobs growth. Business surveys still show companies hiring strongly.

Expectations for strong results seem well grounded. If job growth is in line with expectations, that would be good news.

But What If We Get A Surprise?

Upside. The argument for an upside surprise is largely based on the past two months, when job growth came in over 250,000 even though the ADP report was in the 170s, as it is right now. If the ADP report missed the jobs then, why not this month as well?

Looking at the details, though, it would be hard to repeat. Business and professional services, for example, added a massive 70,000 jobs last month, which is unlikely to happen two months running, and manufacturing looks to have lost jobs rather than added them. Nevertheless, such a surprise remains possible, in which case the Fed would face more pressure for a September rate increase.