KEY DATA: ADP: +173,000; Layoffs: 30,157; Claims: 10,000

IN A NUTSHELL: “The labor market is in decent shape as firms are holding on to their workers as tightly as they can.”

WHAT IT MEANS: While tomorrow’s employment report will be looked at as the be-all, end-all of labor market data, there are other elements of the market that Fed members watch. Fed Chair Yellen is focusing on labor market tightness, not just job gains or the unemployment rate itself. Thus, we need to look at some of the other numbers that provide the texture of the labor market. Layoffs are one of them. Challenger, Gray and Christmas reported that in May, layoff announcements fell to their lowest level in five months. The energy sector continued to lead the way, though the rate of job cuts is slowing sharply. Rising energy prices is apparently helping, though there aren’t a lot of workers left to cut in this sector (just a joke). The summer education cuts were also announced, but that is normal. Manufacturing was also a major player, confirming that this sector is still wobbling along.

The sharp decline in jobless claims adds to the belief that firms just don’t want to let go of their employees. We are nearing record low territory again as the early spring rise has been unwound.

As for tomorrow’s jobs numbers, ADP estimated that payrolls rose more in May than they did in April. As we saw with the layoff announcements, manufacturing continues to cut back. Large companies hired more people, but it would be nice if they actually did it with some gusto.

 MARKETS AND FED POLICY IMPLICATIONS: The labor market is in good shape, but how good we will not know until tomorrow. Even then, the data may be a confusing until we can exclude the Verizon strikers and temporary fill-ins from the numbers. But I expect the additions to payrolls to be near 200,000, adjusting for the Verizon issues and the unemployment rate to decline to 4.9%. Maybe more importantly, the hourly wage number should be solid. If it rises by 0.3%, the wage acceleration that we have been seeing lately could be viewed as becoming systemic, something that the Fed Chair needs to see before she backs sustained rate hikes. By sustained, I am talking about every other meeting for maybe a year. Then sustained would become every meeting. With the employment report less than a day away, it only makes sense that investors act cautiously. as this report has the potential to surprise in either direction.