As the Dow Drops: Here's the Must-Watch Story This Week

The Dow Jones (INDEX: ^DJI) is down 0.88%, or 115 points, in afternoon trading. The obvious culprit is the nonfarm payroll data from last week that showed only 120,000 jobs were added in March. That's well below the increase of 203,000 that economists were expecting.

With markets tumbling on the back of the payroll data, should investors be overly concerned that the market is running out of steam? I wouldn't say so. First off, in previous recoveries there have been periods where job growth dropped off for a brief period before resuming. As an example, the recovery that started in 1981 featured a heart-stopping job loss one month before resuming its upward trajectory.

Second, while the unemployment rate sits at 8.2%, the "underemployment rate" -- which includes those who gave up looking for jobs and people who have taken part-time jobs instead of full-time ones -- ticked down to 14.5% from 14.9% in February. That's a huge drop, and shows that less-frequently-cited "shadow" economic measures showing job growth remained relatively stable even if the headline figure took a tumble for the month. Foolish colleague Morgan Housel further breaks down the figures in this great column looking deeper at the jobs report.

However, this all leads to a larger point: Unemployment alone doesn't show the direction of the economy. We're currently in a period where corporate earnings continue rebounding at a solid rate -- a bit stronger than 6% year-over-year last quarter -- in large part because companies have been successfully cutting costs. For better or worse, persistently high unemployment is being driven by lower-paying jobs that don't always reflect the growth potential of the large global firms that make up the S&P 500 (INDEX: ^GSPC) .

With that in mind, the best course for investors this week is looking past the job report and ahead to Alcoa kicking off the earnings season this Tuesday. With corporate growth having seen a decoupling from trends like lower unemployment (in large part because of the aforementioned global footprint of most large S&P companies), earnings season will give a good look into whether the recovery is still on course.

Banking is getting hit hard today, with Bank of America (NYS: BAC) seeing the largest drop of all Dow components, and the financial sector as a whole down 1.3%. On Friday we'll get a feel for the overall health of the financials when JPMorgan Chase (NYS: JPM) , a company which managed the financial crisis better than its peers, steps up to the earnings plate. The company is expected to post adjusted earnings of $1.15 per share, which is still below last year's posting of $1.28. More indicative of the overall continuing health of the recovery might be Google's (NAS: GOOG) report on Thursday. Information technology has led the market rally and Google is expected to post earnings of $9.64 per share versus $8.08 last year. After badly missing earnings last quarter, Google has been one of the few large tech companies that hasn't seen its shares soar this year.

So if you're looking at the health of the recovery, look past the jobs data. With earnings season just around the corner, there's bigger fish to fry.

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