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I hope you guys aren’t all partied out from 4th of July celebrations, because we could be in for more fireworks with the June non-farm payrolls (NFP) report due tomorrow!

At 12:30 pm GMT, the U.S. is set to publish its June employment figures. Most analysts see NFP posting gains of 92,000. But keep in mind that although this figure is a big improvement from May’s highly disappointing job growth of just 69,000, it’s still well below the number needed to sustain the U.S. recovery.

Remember, it wasn’t so long ago that we had seen back-to-back-to-back months of NFP gains above 200,000. Since then, job growth has fallen for four straight months already, and market expectations have set the bar so low that you could practically trip over it!

Meanwhile, the unemployment rate is expected to hold steady at 8.2%. If you think that’s not so bad, let me put things into perspective for you: the unemployment rate has stayed above 8.0% since February 2009. That’s a total of 40 months, the longest period of over 8.0% joblessness since 1948!

If job forecasts for June are met, it’ll cap off one of the weakest quarters of growth in over two years, providing further proof that the U.S. recovery is losing steam.

Early clues in other reports?

The ISM reports released prior to the NFP report may provide early clues as to the health of the labor market and the general condition of the economy.

Earlier this week, the ISM manufacturing PMI dipped below 50 for the first time in almost 3 years, signaling contraction in the industry. As factory activity is usually a leading indicator of overall economic momentum, this report seems ominous.

On the other hand, the ISM non-manufacturing PMI is due in a few of hours (2:00 pm GMT), but the outlook for it doesn’t look any brighter. The index is forecasted to slide from 53.7 to 53.1 for the month of June.

Will a slump in the manufacturing and non-manufacturing sectors drag down employment? Well, from the looks of recent jobless claims data, we’re already seeing signs of labor market weakness!

Jobless claims have been creeping higher lately, consistently staying above 380,000 for five straight weeks now. This means that labor conditions are worsening, as more and more people are filing for unemployment benefits.

Meanwhile, the ADP employment report is projected to show that 103,000 jobs were added last month, down from the 133,000 net job gains seen in May.

Take note that the ADP report is often seen as an early indicator of the NFP report and that the past two releases both failed to hit expectations. If today’s report, which is due at 12:15 pm GMT, comes in short once again, it could prompt the markets to expect a weaker NFP figure tomorrow.

Potential impact on the dollar

Given all the hoopla for QE3, if tomorrow’s report comes in worse-than-expected, it would simply cast another solid argument for the Fed to launch additional quantitative easing measures. This in turn could lead to risk rallies in the markets at the expense of the dollar.

On the other hand, with expectations already set so low, it might not take much to please market players. If tomorrow’s release presents us with an upside surprise, it could temper calls for more QE and lead to large gains for the dollar.