We're about to get 'the most important' jobs report of the year

The June jobs report is the most important one of the year so far.

In May, the US economy added just 38,000 jobs, the smallest in six years. Even adding back the roughly 35,000 Verizon workers who were on strike left put the payroll gain well below economists' forecast for 160,000.

"Friday's payrolls report will be even more closely watched than usual, as markets come to grips with a post-Brexit world and look for confirmation that the weak May NFP [non-farm payrolls] was a blip rather than the start of a new, worrying trend," wrote Bank of America Merrill Lynch strategist Athanasios Vamvakidis and team.

In their note on Wednesday, they described Friday's upcoming report as "the most important NFP of the year."

Along with the weak May jobs report, there have been a number of signs of a hiring slowdown.

The Institute of Supply Management said in its monthly report on the services sector that employment contracted in May. Economists pay close attention to services because the sector accounts for two-thirds of economic growth and most job creation.

Additionally, the number of job openings has outpaced hires for the past six years. But as job openings surged to new highs in recent months, hiring didn't follow.

The flip side of these worryings signs is that as the economy approaches full employment and the unemployment rate declines, the number of new jobs added is expected to fall, too.

But May's dismal non-farm payroll gain was weak enough to stoke real concerns about the labor market. And that's why the stakes are so high for Friday's jobs report.

Vamvakidis said there's an asymmetric risk, implying that the negative reaction to a weak jobs report would be stronger than the rally following a strong report.

The median economist forecast is for 180,000 jobs in June, a rebound that might be too optimistic, according to Vamvakidis.

That's because historically, the June jobs report is one of those that tends to undershoot because of expectations that were too high, and then get significantly revised by the Bureau of Labor Statistics later. March, August and September were other months that tended to have a net revision bias in the jobs data, according to BAML.

Vamvakidis wrote (our emphasis),

"The market is already pricing the Fed to be on hold despite forecasting a strong NFP rebound, because of Brexit-related risks, in our view. This suggests it would take a much stronger rebound to move markets. However, a weak NFP would surprise markets and could trigger a sharp risk-off market correction. As the market is already pricing the Fed to be on hold, the long risk position of the market will likely be squeezed if the NFP disappoints."