The bond market's response to the December employment report -- which will be released tomorrow at 8:30 a.m. EST -- may ultimately depend less on the report itself than on the stock market's reaction to it.

Most economists seem to think that for a variety of reasons, the December edition of the jobs report -- the

ne plus ultra

economic indicator -- is likelier to surprise on the strong side than on the weak side. Normally, that would trigger a selloff in the bond market. Bond prices would fall, sending yields (market interest rates) higher, as traders built in a greater likelihood that the

Fed

will hike the

fed funds rate

(the official interest rate) at least once to cool the red-hot economy.

A bond-market selloff may indeed be the initial reaction to a stronger-than-expected December jobs report,

Lehman Brothers

senior economist Ethan Harris says. But if the rising bond yields send stock prices tumbling, bonds could rebound. So far this year, that's been the dominant pattern: Rising stock prices hurt bonds, while falling stock prices help them. The logic? Rising stock prices help propel economic growth by sustaining a fast rate of consumer spending, while falling stock prices chasten consumers.

"It's a focus we think makes sense in that the stock market has become more and more of a driver of the economy," Harris says. Lehman Brothers estimates that a given percentage increase in stock prices has twice as large an effect on consumer spending than it did five years ago.

The employment report has four major components. The average forecasts, as calculated by

Reuters

, are as follows:

Nonfarm payrolls are expected to rise by 224,000, on the heels of a 234,000 increase in November. The average gain over the last 12 months is 225,000;

The unemployment rate is seen holding steady at 4.1%, which is the lowest level since January 1970, indicating an extremely tight labor market;

Average hourly earnings are projected to rise 0.3%, after a below-trend increase of 0.1% in November and

The average workweek is projected to hold steady at 34.6 hours, which is the longest since February.

A strong payrolls number is expected for a variety of reasons.

MCM Moneywatch

chief economist Russ Sheldon notes in a report that the relatively long average workweek in November, "could be a sign of substitution of overtime for hiring, caused by lack of worker availability and suggesting more hiring ahead." Sheldon also points out that in the

latest

Consumer Confidence Index

for December, the percentage of consumers who believe jobs are plentiful hit an all-time high of 51.5%.

But also, Sheldon points out, the weather was unseasonably warm during the week the data for the report were gathered (which is always the week that includes the 12th of the month). With the warm weather (an average of six degrees above normal in key population centers), Sheldon says, "it is safe to say that the month was better than average from the point of view of economic activity."

While the service sector is by far the largest component of U.S. payrolls, the good weather should also boost construction employment, economists note. And manufacturing employment, which has contracted for 18 of the last 20 months, is due for a rebound.

If payrolls growth isn't strong, economists say it may be because the labor market is so tight that employers simply couldn't find as many people as they wanted to hire. Anecdotal reports have suggested that was the case for retailers looking to bulk up their sales forces for the holidays.

In that case, Lehman's Harris says, market participants will look to unemployment to either confirm or deny that growth is slowing. If a weak payrolls number is accompanied by a drop in the unemployment rate, suggesting "further tightening in the labor pool, any joy the bond market feels at a weak payroll number will be negated."

There's a technical reason to expect the unemployment rate to rise, however.

Wrightson Associates

points out that when the 12th of the month falls on a weekend, the unemployment rate has shown a strong tendency to be above-trend.

Reaction to the average hourly earnings increase is harder to predict. A larger-than-expected increase certainly won't be welcomed, but the trend in earnings growth remains friendly. It was 3.6% in November, down from an April 1998 peak of 4.4%.

Finally, in the hour after the release, economists will scramble to see what happened to the pool of available workers and the augmented unemployment rate. This pair of statistics, which we examined in a recent

story, is Fed Chairman

Alan Greenspan's

new pet.

As we explained, these stats aren't on the face of the jobs report; they have to be extracted from it, so an immediate market reaction isn't likely. Also, some of the numbers involved still aren't seasonally adjusted.

The good news, according to Wrightson, is that with the December report, there will be six full years' worth of data on the pool of available workers -- enough to work out a seasonal adjustment system.

BLS

statisticians are considering introducing one in January, Wrightson says.