The risk of a double-dip recession is on the markets' mind this morning after Thursday's  violent sell-off. The early morning employment report will be absolutely key in shaping the outlook for the rest of the year.

"Today's employment report will arguably be the most important one so far this year because of the renewed focus on the dismal growth outlook across the developed economies," wrote Neil Dutta at BofA Merrill Lynch, who predicts 75k new jobs, this morning. 

"Our sense is that anything between 50 to 100K on the headline will generate a fairly muted capital market response," he added. "The monthly change needed for a statistically significant move on payroll employment is   +/- 101K. In other words, there is a nontrivial possibility for a negative print given the softness in the recent trend and expectations today."

Economists at BMO Capital Markets added: "Should employment decline and/or the unemployment rate rise for the fourth straight month, the recession-alert light would flash red. Conversely, a triple-digit job gain would help allay double-dip fears, throwing a life-raft to equities."

As 8am, Treasuries are modestly softer. The benchmark 10-year yield is four basis points up at 2.45%, the two-year yield is two basis points up at 0.28%, and the 30-year yield is three basis points up at 3.71%. Mortgages are having a rough start too. The Fannie Mae 4.0 MBS coupon is -14/32 at 103-03.

Equities continue to unravel after wiping out 2011 gains Thursday - the 4.78% single-day loss in the S&P 500 was its worst drop since early February, 2009. 

The S&P 500 now looks to open 1.25 points lower at 1,197.50 and Dow futures are down 46 points at 11,340.

Light crude oil fell 0.31% overnight to $86.30, while gold prices rose 0.54% to $1,667.70.

The latest estimates for July's Employment Situation range from 30k to 150k with the median estimate at 85k (down slightly from 90k at the start of the week). 

"The government picture is bleak given state and local cutbacks kicking in at the start of the fiscal year, combined with temporary layoffs of just over 20,000 in Minnesota during its government shutdown," said economists at IHS Global Insight earlier in the week. "Overall we expect 50,000 jobs to be created, with 115,000 private jobs offset by a loss of 65,000 government jobs."

Economists at Janney Capital Markets added this dour note: 

"We don't hold out much hope of meaningful job gains in July, though the monthly performance should fare much better than either June's or May's depressed results. Weekly jobless claims retreated back down below the psychologically-important 400k level for the week ended July 22, which provides some evidence of a slight uptick in hiring. That said, the government spending debate represents a huge overhang for the labor markets. Imagine you're running a firm that get 50% of its revenue from government contracts. Would you hire long term employees when federal discretionary spending is at risk of dropping 5% or more? Realistically, no, which is only but one of the ways that federal fiscal decisions can negatively impact the private sector."

The Unemployment Rate, which ticked up one-tenth to 9.2% in June, is expected to hold steady this month. Some economists even think it could rise to 9.4%.

Later in the day, at 3:00pm is Consumer Credit. It climbed for the seventh straight month in April with a $6.3 billion gain, but strong installment lending from the federal government and commercial banks were responsible for the increase, whereas revolving debt - mostly credit cards - fell back $0.9 billion. The June report is anticipated to show a $5 billion expansion, but the report is all about the details; what economists look for is a sign that consumers are ready to spend again. So far, this report says they aren't.

"After falling to record lows during the financial crisis, consumer credit began growing in October," said economists at Nomura Global Economics. "Growth has been one-sided, however, fueled by non-revolving credit, the majority of which represents auto and student loans. Revolving credit (i.e., credit cards) remains largely out of favor with households, increasing in only 2 of the past 33 months. In May, consumer credit expanded by $5.1 billion and consensus is looking for a similar $5.0 billion increase in June."