The economy added 18,000 jobs to nonfarm payrolls, the Labor Department said, the smallest monthly gain in more than four years. The unemployment rate rose to 5 percent after hovering near 4.7 percent since the summer.
“This is a far weaker report than we expected,” Jared Bernstein, an economist at the Economics Policy Institute, wrote in an e-mail message. “The uptick in the unemployment rate alone, which won’t be revised away, is flashing recession.”
Investors appeared to concur. At noon, the Dow Jones industrial average was down 165.58 points, or 1.3 percent, at 12,891.14. The Standard & Poor’s 500-stock index lost 1.6 percent, and the technology-heavy Nasdaq composite was off by 2.5 percent.
Big losers included Intel, the chip maker, whose shares were off more than 7 percent after an analyst said the company’s orders were slowing. Apple, Home Depot, Alcoa, General Motors and Microsoft also showed big declines.
Investors ran for cover, moving into safe havens like gold and Treasury bonds. The dollar fell against the euro in anticipation of another rate cut in the United States.
Wall Street has been on edge since a manufacturing report came in weaker than expected on Wednesday, and many investors were looking to the employment figures for a clearer picture of the economy’s growth prospects in 2008.
They did not like what they saw. Payroll growth slowed significantly throughout 2007, but the weak December number makes for a particularly painful finish to the year. The report came in far below analysts’ estimates of 70,000 additional jobs, putting annual job growth at its lowest level since 2004.
The weak report bolstered expectations that the Federal Reserve will cut its benchmark interest rate at its policy meeting later this month by as much as half a point. Fed officials have indicated they will focus on sustaining economic growth, even as inflation remains a concern.
Investors tend to react favorably to a likely rate cut, but they appeared to be focusing on the poor economic outlook. “What they’re worried about is not whether or not the Fed is cutting rates,” said William Rhodes, chief investment strategist at Rhodes Analytics, a financial research firm. “What they’re concerned about is growth.”
Wage growth among rank-and-file workers, who make up more than 80 percent of the workforce, fell behind inflation in 2007, meaning that many employees saw the value of their income decrease last year. “We can almost surely put aside the question as to when the overall economic head winds will reach the labor market,” Mr. Bernstein said. “They’re here.”
Average hourly earnings rose 3.7 percent last year, below the 4.3 percent rise in 2006, and stayed flat in December, rising 0.4 percent, the same as in November.
Indeed, weakness in the housing sector dragged down employment in December, with the manufacturing and construction sectors recording substantial job losses. Private payrolls decreased last month by 13,000 jobs, as a drop in the retail sector could not offset increases in the health-care and service-providing industries.
In November, the economy added 115,000 jobs, which was revised up from the government’s preliminary estimate of a 94,000 increase. Growth in October was revised down to 159,000 jobs from an initial estimate of 170,000.
taken of nytimes.com