Today's jobs report is expected to show that payroll gains continued to fade in July as the unemployment rate ticked higher. Markets are counting on tepid job growth to put a September Federal Reserve rate cut firmly in play. But S&P 500 futures, already under pressure from new Trump tariff rates and Amazon (AMZN) earnings news, could be in for an unwelcome surprise.

Granted, just about all the evidence points to a soft jobs report. An odd 73,000 jump in government jobs in June also may be reversed or revised away. But the one outlier — income and payroll taxes withheld from employee paychecks —suggests that investors should be prepared for anything.

Jobs Report Forecasts

Economists are forecasting a 110,000 rise in payrolls for July, including 100,000 in the private sector, according to the Econoday consensus estimate. Forecasts range from 55,000 to 125,000, pointing to more downside than upside risk.

The unemployment rate is seen ticking back up to 4.2% from 4.1%, after it unexpectedly dipped in June.

Tax Receipts Show Solid Growth

Income and payroll taxes withheld from employee paychecks climbed 6.4% from a year ago in the five weeks through July 25, the second straight month of solid gains. That's way above the 4.5% annual pace of aggregate private-sector pay growth in June, a figure that includes both additional work (employees and hours) and wage growth.

Unlike most labor market data that is subject to revision or based on surveys, the tax data is real-world data that covers the vast majority of workers. Still, the tax receipts can be a bit lumpy and skewed by a number of factors, including tax code progressivity, as well as bonuses, commissions and the cashing in of stock options.

Fed Rate-Cut Odds

Ahead of the jobs report, markets are pricing in 43% odds of a rate cut at the Sept. 17 Fed meeting. Those odds have fallen from 64.5% a week ago, after a perceived hawkish tone from Fed Chairman Jerome Powell during Wednesday's news conference and a slight overshoot of the Fed's primary inflation rate for June.

S&P 500

S&P 500 futures are pointing 0.8% lower in early Friday stock market action. The S&P 500 already has a three-session losing streak, after reversing an early gain on Thursday and finishing 0.4% lower.

Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.

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