Have jobs become a leading indicator?

Employment, it turns out, may not be such a laggard after all.

The job market, often described as reacting in slow-motion to shifts in the pace of economic growth, may actually be a pretty solid indicator of the United States' prospects.

That means a double-dip U.S. recession cannot yet be completely ruled out, particularly since economists believe Friday's payrolls report for July will show a second straight month of net job losses.

Granted, the decline of 63,000 projected by a Reuters survey will reflect temporary census workers being let go by the government. Still, the 91,000 increase in private sector jobs forecasters expect is paltry, and not enough to keep up with new entrants into the labor force.

Employment typically lags the business cycle, but that doesn't have to be the case, said Karen Dynan, a former Federal Reserve economist now at the Brookings Institution. The loss of momentum in labor markets in recent months was one of the signals that we weren't entering a self-sustaining recovery.

U.S. gross domestic product, the broadest gauge of economic activity, grew at a 2.4 percent annual rate in the second quarter, far weaker than the upwardly revised 3.7 percent pace in the first three months of the year.

Uncertainty about a further slowdown in the second half of the year is making employers reluctant to hire. That helps explain why the incipient recovery has thus far failed to make much headway in replacing the more than 8 million jobs lost during the recession of 2008-2009.

The unemployment rate is likely to rise again, to 9.6 percent from 9.5 percent, according to the Reuters poll, having peaked at 10.1 percent late last year. Nearly half the country's jobless have been without work for six months or more.

America's jobs quagmire has big implications for other major economies around the world.

With Europeans struggling to keep their heads above water amid lingering anxiety about high levels of sovereign debt, a sputtering global economy needs at least one engine firing on all cylinders. Apart from China, which continues to expand rapidly though at a bit more restrained pace, the United States is pretty much the only country big enough to pull things along.

Brazil, which struggled with subpar rates of expansion for many years, is registering a steep growth spurt of about 9 percent. But at just over a tenth the size of the U.S. economy, the South American giant is simply not large enough to carry the world.

Japan, for its part, looks to be stumbling anew, with factory output experiencing its sharpest pullback in more than a year during June.

TWO-WAY STREET

Just as global economic growth can feed on itself, so can the many risks posed by volatile financial markets. Europe's debt debacle and worries about its banks may have contributed to the soft patch now facing the United States, which has been marked in part by a tapering off of manufacturing activity.

There has been concern about how much circumstances in Europe might create a contagion effect, said Dana Johnson, chief economist with Comerica in Dallas.

Some of that nervousness was quelled after European bank stress tests found only 7 of 91 banks needing additional capital, though many investors remain skeptical of the methodology used to sound the all-clear.

The European Central Bank, which meets on Thursday, is widely expected to leave official rates at 1 percent. The ECB began buying euro zone government bonds in May in an effort to quell investor nervousness about sovereign bonds from heavily indebted countries such as Greece, Portugal and Spain.

Despite a recent lull in market anxiety, the continent's economic prospects are at best mixed, with eurozone growth still meager even as some countries, like Germany, show some vigor.

German industrial output data, slated for release on Thursday, is expected to have risen 0.7 percent in June following a 2.6 percent jump in May.

Yet with the U.S. economy again on the ropes, it is difficult to see Europe coming back very strongly.

At the same time, government stimulus appears close to tapped out on both sides of the Atlantic. High debt levels have restricted the appetite for additional fiscal measures, while major central banks have already taken borrowing costs to historic lows.

To me it looks like most folks will be coming in with a forecast for GDP in the current quarter that is under 2 percent, said Mark Vitner, senior economist at Wells Fargo in Charlotte, North Carolina. That puts us pretty close to a double-dip.

(Editing by Dan Grebler)