Jobs data on Friday could prove a make-or-break moment for global financial markets increasingly alarmed that the world's largest economy could skid into a fresh recession.
Concerns over the weak U.S. recovery and Europe's inability to tame its spreading debt crisis have turned an intense spotlight on the monthly non-farm payrolls report.
"The report is going to be very critical. One of the things that has been the largest headwind to economic growth has been the high unemployment rate," said Jason Ware, a senior research analyst at Albion Financial Group in Salt Lake City, Utah.
"If there isn't job growth, it crystallizes in a lot of people's minds that we are in fact in an environment where growth may be really difficult to come by."
U.S. stocks on Thursday suffered their worst sell-off in two years. European stocks slumped to a level not seen since after the financial crisis in mid-2009.
U.S. payrolls probably rose by 85,000, according to a Reuters survey, after a measly 18,000 gain in June. The unemployment rate is expected to hold steady at 9.2 percent.
Top policymakers at the Federal Reserve will sift through the report when they meet on Tuesday but are not expected to announce any new measures to support the sputtering recovery.
The U.S. central bank has cut interest rates to zero and spent $2.3 trillion on bonds. Policymakers have said they want to see how the economy fares before taking any further action.
July's anticipated jobs growth might not be sufficient to soothe jittery investors. June's rise was the smallest since September 2010 and followed a gain of just 25,000 in May.
The Labor Department will release the July employment report at 8:30 a.m. (1230 GMT)
GROWTH HAS STALLED
U.S. growth stalled in the first half of 2011, fanning fears of a new downturn. Gross domestic product grew at a 1.3 percent annual pace in the second quarter after a scant 0.4 percent rise in the first three months of the year.
Economists said the weakness did not explain the abrupt slowdown in hiring in May and June. Average private payroll growth in the two months skidded to 65,000. It had averaged 230,000 in March and April.
"There is an extremely elevated degree of anxiety that has dominated recently, both the corporate and the consumer sectors. This tends to aggravate what started initially as a moderate slowdown in economic activity in the spring," said Anthony Karydakis, chief economist at Commerzbank in New York.
A stand-off between Democrats and Republicans over raising the country's debt ceiling poisoned the atmosphere for employers and consumers. The economy's poor health has eroded President Barack Obama's popularity among Americans and could hurt his chances of reelection.
The borrowing limit was raised this week in a deal that relied on spending cuts. Economists estimate the budget cuts and expiring stimulus -- including a payroll tax cut and emergency unemployment benefits -- could subtract more than a percentage point from GDP growth next year.
PRIVATE HIRING TO STEP UP
All the gains in non-farm employment in July are expected to come from the private sector, where employment is seen rising 115,000 -- an acceleration from June's 57,000 increase.
Only a fraction of the more than 8 million jobs lost during the downturn have been recovered.
Government payrolls are expected to have dropped by about 30,000 in July, a ninth straight month of job losses. But there is a risk of a steeper decline after a government shutdown in Minnesota left thousands of state workers without paychecks during the survey period for July payrolls.
"Since the jobs recovery began in March last year government agencies have cut 410,000 jobs," said Patrick O'Keefe, head of economic research at J.H. Cohn in Roseland, New Jersey.
With looming budget cuts at the federal government level and state and local governments still tightening their belts, the burden of job creation falls on the private sector.
At an average of 145,000 private jobs a month, O'Keefe said it would take four years to return to the pre-recession employment level.
Within the private sector, most of the job gains are likely to be concentrated in the services sector. Temporary help -- a harbinger of permanent hiring -- will be closely watched after declining for three straight months.
Manufacturing payrolls are expected to add to June's 6,000 gain because of fewer auto plant shutdowns in July for annual retooling. Most auto manufacturers brought forward their plant shutdowns to deal with a shortage of parts from Japan after the March earthquake and tsunami.
The employment report is also expected to show the average work week unchanged at 34.4 hours and with average hourly earnings rising 0.2 percent after being flat in June.