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The nonfarm payrolls report will be out before the market opens and is likely to surprise on the upside. Consensus estimates are around 100,000 new jobs in July versus a disappointing 80,000 jobs added in June. The report has disappointed the market for three consecutive months, with an average of just 75,000 jobs created versus an average of 226,000 jobs in each of the first three months of the year. The trend has become too strong to blame on an unseasonably warm winter pulling employment forward - the labor market recovery has clearly lost momentum.

Good News at the Open…

Despite recent weakness, weekly initial claims for unemployment have been surprising to the upside on strong auto manufacturing and problems in the seasonal adjustment process. Though the adjustments may work themselves out and provide a disappointment in weekly claims in August, they should provide support to the headline jobs number for July. The ADP employment report beat expectations on Wednesday with a gain of 163,000 versus consensus estimates for 125,000 new jobs. The private survey has come in higher than the actual government report by about 54,000 over the past few months, which would bring Friday's nonfarm to about 109,000 and above most estimates.

Another bright spot in recent employment data was the increase in earnings and workweek in the June report. Both numbers beat expectations with an earnings increase of 0.3% and 0.1 hour increase in the average workweek. These figures often lead an increase in jobs as employers try to squeeze more out of existing employees before bringing on more help.

United Parcel Service (NYSE:UPS) is often used as one of the key barometers of the corporate economy. The world's largest express and package delivery company sees about 60% of its revenues from domestic business. UPS missed expectations for second quarter earnings per share by $0.02 and revised its guidance down for the second half of the year in line with GDP growth of just one percent. Revenue growth has been decent through the recovery at an annualized pace of 8.2% in the two years to fiscal 2011, but investors will want to keep an eye on guidance from the company to gauge the strength of corporate America.

McDonald's (NYSE:MCD) also missed expectations when it reported earnings on the 23rd of August. The company's competitive position in brand and pricing could not help it to escape pressures in the macro environment. Revenue from its U.S. restaurants rose 4.8% in fiscal year 2011 but were up just 2.3% in the second quarter of 2012 compared to the same period last year. Consumers searching for lower prices should be supportive, but weaker consumer confidence and low real wage gains have started affecting the top line at McDonald's and the larger economy.

But Be Ready to Book Profits

Any market gains on an upside surprise in the jobs report could be tempered quickly with the 10am release of the ISM non-manufacturing index. While still showing expansion in the services sector, the index fell last month to 52.1 in May from 53.7 the month before. Consensus expectations are for another decline to 53.0 in July.

I warned investors to be ready for a weaker-than-expected factory orders report on Thursday on weakness in the new orders component of the recent ISM manufacturing data. Factory orders registered a 0.5% drop versus calls for a 0.5% gain for the month helping to send shares of manufacturing companies down.

The outlook is just as bad for the non-manufacturing report as the new orders component of last month's report was exceptionally weak, dropping from 55.5 to 52.3 in June. The inventories component of the index remained above new orders for the third straight month implying some inventory building and possibly a continuation of weaker data.

Online retailer Amazon (NASDAQ:AMZN) is another key indicator of strength in U.S. and global retail consumers. North America accounted for about 56% and net sales increased by 29.5% in the second quarter versus the same period last year. While macro pressures and foreign exchange losses also weighed on the company, an increase in revenue through greater usage of e-commerce and stronger margin performance helped to beat expectations. While consumers seem to be a little more frugal in their fast food choices, sales to electronics and media devices appears to be stronger.

I have been following Home Depot (NYSE:HD) as a barometer for the housing market over the last few years. The $78.7 billion home improvement chain is scheduled to report second quarter earnings on August 14th, with consensus estimates at $0.97 per share, a gain of 12.8% over the same quarter last year. The company raised its 2012 margin guidance in early June and expanded the buyback program. While recent data on housing has implied a bottom, revenue growth at Home Depot has only been just above 3% over the last two years. Investors have sent the shares up more than 70% in the last twelve months, but may be in for a weak second half if housing and the general economy does not meet expectations.

Source: Don't Be Fooled By The Jobs Report, Watch These 4 Stocks On Friday