The all important July non-farm payrolls number was released this morning and it contained some positive news for the economy and the stock market. In July employers cut 247,000 jobs, far less than most analysts were expecting. The average analyst estimate was for a loss of 320,000 jobs during the month of July. Revisions from May and June’s job data also lowered the numbered of jobs lost by 43,000. The unemployment rate now stands at 9.4%.

What were the weakest parts of the jobs market in July? The construction sector cut 76,000 jobs in the month and retailers cut 44,000 jobs. Both of these numbers represent an increase from the amount of jobs lost in these sectors in the previous few months. Where were the bright spots? The consistent standout of late has definitely been the health care sector, which added 20,000 jobs in the month. Another surprise to the upside were the leisure and hospitality payrolls adding 9,000 during July.

As one would expect the stock market responded in a very positive way to what is the best employment report since last September.  On the other hand treasury prices fell markedly today as thoughts than an economic recovery may be nearer than expected fueled selling of treasuries. The dollar was very strong, and crude oil and gasoline futures fell because of the report.

What does this mean for the average individual? It means that there may be a little bit of light at the end of the tunnel, but it also isn’t an all clear signal. Be cautious not to get too positive over a jobs report that shows a quarter of a million jobs lost in the past month. The prospects for an economic recovery are certainly brighter than they were several months ago, but one would be wise to keep perspective on where we are at in the cycle. Progress is being made, which is great, let’s just hope it is a trend that continues!

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.