A labor market report that will be released on Friday is expected to confirm that the U.S. economy continued to add jobs as the service sectors get back to normal.

Trading Economics estimates that the economy added 400,000 jobs in April, slightly below the 431,000 reported in March. That’s in spite of the drop in the first-quarter GDP reported last week.

“The negative first-quarter GDP print is unlikely to be reflected in the employment report,” Dan North, a senior economist at Allianz Trade, told International Business Times. “The killer in that report was net exports. As the U.S. has emerged from the pandemic, the rest of the world is still struggling, so U.S. demand for imports has far outstripped the demand for U.S. exports. U.S. consumption and investment are still healthy.”

But three other numbers could steal the show. One of them is the unemployment rate, which measures the tightness of the labor market that puts pressure on wages. Trading Economics expects the unemployment rate to come in at 3.5%, slightly below the 3.6% in March, indicating that the labor market tightness worsened in April.

Then there’s the labor force participation rate, which provides a good indicator of the state of the labor supply. Trading Economics expects labor force participation to come in at 62.5%, slightly higher than the 62.4% in March, easing supply pressures.

And there is hourly earnings growth, a predictor of future inflation, as higher earnings eventually translate into higher prices. Trading Economics expects hourly earnings to grow at 5.6% in April, in line with the previous month, meaning wage pressures continue to build in the labor market.

“There is more wage pressure in the pipeline because of the intense labor shortage,” North said. “For example, the NFIB survey is showing a record amount of respondents having already given wage increases, and a near-record amount planning to.”

What do these numbers mean for inflation, monetary policy and markets?

“A super-tight labor market,” said North. “Think about that 3.5% unemployment rate… it’s returning to that five-decade low of 3.5% seen just before the pandemic."

That’s well below what economists consider the “natural rate of unemployment,” an unemployment rate consistent with the Fed’s maximum employment, which means that the Fed should have switched policy gears a long time ago.

“Where in the world has the Federal Reserve been?” North asked rhetorically. “Unemployment peaked at 14.7% in April 2020, and then as the economy made a spectacular recovery in the third quarter of 2020, the unemployment rate started to fall like one of those terrifying roller coaster rides. And at the same time, wages started to recover sharply.”

Rising wages are undoubtedly a good thing for Main Street, at least on the surface, since they still lag behind inflation.

They become a source of future inflation in what is known as the “wage-price” spiral. That’s how inflation is getting out of control unless the Fed raises interest rates enough to slow down the economy, easing the pressure that accommodates higher inflation.

What does it mean for Wall Street?

So much pain for investors on the long side of the market, at least in the short term, as higher interest rates dry up liquidity and set up the revaluation button. Meanwhile, there’s always the risk that the Fed is overtightening, pushing the economy into a recession.

That’s when short-term pain potentially turns into long-term pain, and Wall Street bears take over the party.