All eyes on nonfarm payroll data

Nearly everyone in economics and public policy circles is preparing for another sobering job report. Since the recession started 19 months ago, the U.S. economy has lost more than 6.5 million jobs.

Every monthly jobs report is important, but this one could become a major market mover for two reasons. First, institutional investors have discounted an improving lay-off picture -- that is considerable fewer lay-offs, down to a level near 300,000. If the July employment situation report shows monthly layoffs above 400,000, that could feed the narrative that the U.S. recovery will be weak, delayed, and/or perhaps even succumb to a double-dip recession. Second, a job loss total above 400,000 would also re-ignite concerns about social service costs in the U.S - another negative for already tight state budgets.

Combine the above two and one can easily see how a major down day for the Dow could occur. A summer Friday with light trading only magnifies the potential downside.

Conversely, a better-than-expected July jobs report -- with fewer than, say, 250,000 jobs lost -- would likely be seized upon by the stock markets' institutional bulls as further evidence that the U.S. economic recovery approaches.

Market/Economic Analysis: One cannot underscore enough the economic and stock market importance of the monthly jobs report. It's the most important economic data point in the U.S. economy right now, and for the foreseeable future. Further, the report has economic, political and social ramifications.

That's because, although the recession began under President George W. Bush, from an electoral standpoint, that's irrelevant now. President Obama and the Democratic Party-led Congress are responsible for the U.S. economy now, and investors and voters will judge them largely on their ability to fix the U.S. economy, including earnings growth and job creation.

Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.