Today was the much anticipated release of the September Jobs report, and the results weren’t what the bulls were looking for. The economy lost 263,000 jobs in the month of September, much more than the 175,000 that economists expected. As bharathi alluded to earlier today, this has caused the amount of fear in the market to rise, which isn’t necessarily bad for investors. The unemployment rate rose to 9.8%, the highest level since June of 1983.

What were the main sectors behind the massive job losses in the month of September? The service industry lost 147,000 jobs and the manufacturing industry also lost 51,000 jobs in the month. Interestingly, government jobs were also slashed by 53,000 in September. Education and health services were the strongest sectors, but the two of them combined to add just 3,000 jobs. Since the recession began in 2007 the number of unemployed persons in the United States has risen by a stunning number of 7.6 million.

Clearly the employment picture seems to be the biggest fly in the ointment for the economy and its improving outlook. Employers continue to be very hesitant to commit to any major hiring programs, and some continue to try to cut costs by reducing their payroll. The most disappointing thing about today’s number is that it was actually worse than the number from August, stopping the trend of slight improvement in the labor data. It is far too early to tell if this is a minor blip in what is still a slowly recovering job market, or something worse. While the overall economy appears to be moving out of the recession it will be impossible to start a new strong economic period without the labor market improving. The single biggest key for the economy of the United States and the world is improving the amount of confidence that employers have, which should lead to a healthier job outlook.

How will the U.S. economy recover? Every pundit in the stock market has own opinion on this. Some experts thought that economy will recover in V shape, meaning that sharp plunge will be followed by sharp recovery. So far, it seems to be the case. Some thought that we will go thru U shaped recovery. Some argued that U.S. economy will recover only in W shape (sharp plunge + some recovery + sharp plunge + sharp recovery).  Some thought it could be L shaped or Square-root shaped.

Just when you think that you heard all predictions from stock market gurus, someone comes out with the prediction of “Reverse square root” shaped recovery! Greg Ip, U.S. economics editor for the Economist, thinks the recovery will be the combination of a sharp fall down, a sharp rise part of the way back up, and a long struggle.

I don’t believe in the “reverse square root recovery” theory. Economy is already turning around. Only missing piece is the employment. I see hiring picks up everywhere. We are having difficulty filling in some positions. Number of quality resumes we get also fell down in the recent weeks. My friend in M&A firm tells me that merger activities picked up lot of momentum in the last six weeks. At this point, I will just ignore the “reverse  square root recovery” prediction.

So many people are asking the question, how bad will the economy get? Although there are a number of different data points and metrics to keep an eye on, I truly believe the real answer will lie in a single area, the job market. As a consumer and an investor, if you want to know just how bad things will get, keep a close eye on things such as the weekly jobless claims number as well as the monthly non-farm payrolls data.

Why do I simplify this all the way down to the job market as being the single thing that you should watch? It really is quite simple if you consider all of the reasons that a terrible job market hurts our overall economy badly. A consumers fear of losing their job certainly drives them to spend far less money, which in turn hurts economic numbers. If one actually does lose their job they most certainly won’t be out spending money on discretionary items. Finally, and very importantly, a poor job market means poor business to business spending as well. If a company is slashing jobs quickly it is unlikely that they are spending a whole lot of money to input new technologies, softwares, etc.

The most recent job numbers have been extremely bleak, and today’s weekly jobless claims number was the worst one in 26 years, so the signs are not looking good at all. In the interim it is likely that things will get even worse before they get better, but if our economy is going to stabilize anytime soon we will have to see a slowing in the number of jobs being lost. The American economy simply cannot turn around without the job market stabilizing. While all the experts are crunching every number, save yourself some time and energy and simply watch the job market, it will show you the economic picture.