The report that could be huge for the market next week

The Bureau of Labor Statistics is set to publish its monthly employment situation next week. S&P Global portfolio manager Erin Gibbs is watching for one critical portion: wage growth.

"I'm looking for the unemployment rate to remain relatively stable, around 4.3 percent. What I'm really looking for is the wage growth. That's where we want to see some inflation and some healthy growth within the U.S. consumer," Gibbs said Friday on CNBC's "Trading Nation."

Economists are collectively expecting hourly earnings to rise by 2.6 percent year over year, and for the unemployment rate to remain unchanged at 4.3 percent, according to FactSet data. Last month's report reflected falling unemployment, though a nonfarm payrolls figure and wage growth figure missed economists' expectations.

To Gibbs, the "real concern" in the prior report was average hourly wage growth.

"Higher wage growth would mean that consumers have more money to spend; this is where we could really see an impact in the consumer discretionary sector. It's been particularly hard hit for the first half of the year. We could finally see some growth, particularly in those retail stocks, for the second half," Gibbs said.

Though the S&P 500 consumer discretionary sector has advanced a little more than 10 percent year to date as the third-best sector, retail stocks in the space fell in the first half of the year as brick-and-mortar retail names have faced headwinds. A popular retail-tracking exchange-traded fund, the XRT, has fallen nearly 8 percent this year.

Despite a relatively healthy economic backdrop, wage growth hasn't advanced at the same clip, Bank of America Merrill Lynch economists wrote Friday in a note to clients.

"Wage growth moved sideways in the first half of the year despite a faster than expected drop in the unemployment rate. But further job gains and reduction in slack in 2H should gradually bid wages higher," the authors, led by chief U.S. economist Michelle Meyer, wrote.

Meyer expects average hourly earnings to grow by 0.3 percent month over month, pushing the year-over-year comparison up to 2.6 percent (from 2.5 percent).

In a mid-May note entitled, "What's up with wages?" Meyer wrote that as of the latest data, "wage growth in the retail trade and mining and logging sectors have lagged behind, while information, leisure and hospitality, nondurable goods manufacturing, and professional and business service sectors have experience above-average wage growth."


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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