Reuters's initial story on the January 6, 2006 BLS Employment Report:

Reuters Business Channel | Reuters.com: Job growth below expectations in December: Fri Jan 6, 2006 9:20 AM ET: By Glenn Somerville

WASHINGTON (Reuters) - U.S. employers added a smaller-than-expected 108,000 new jobs in December but that followed a much stronger wave of hiring than previously thought in November when rebuilding after hurricanes was getting under way, a government report on Friday showed.

In its monthly report on employment, the Labor Department said the unemployment rate fell in December to 4.9 percent from 5 percent in November.

The December new-jobs total was well below Wall Street forecasts for 200,000 jobs. But it came after an upwardly revised 305,000 new jobs in November -- the strongest hiring month since April 2004 -- instead of 215,000 that the department reported a month ago.

Analysts saw the report as reinforcing chances that the Federal Reserve was on course for a relatively early end to rate rises after hiking the federal funds rate 13 times since mid-2004 to 4.25 percent.

"The report is probably a shade on the weak side and it increases the chance that the Fed is more likely to stop raising rates at 4.75 percent at the middle of the year, rather than going higher," said Cary Leahey, senior managing director at Decision Economics in New York.

There also was a revision in the October jobs totals -- to an increase of 25,000 rather than 44,000 -- but for the two months October and November the net effect was 71,000 more jobs than the government previously had estimated.

On average over 2005, some 168,250 new jobs were created each month -- a steady if unspectacular pace of growth.

U.S. manufacturers hired 18,000 new employees in December on top of 8,000 in November and 13,000 in October -- the first time since March-May 2004 that manufacturers have hired for three months in a row. But construction jobs declined by 9,000 last month, a reversal from November's 42,000-job addition.

Overall, the employment figures imply a relatively strong hiring outlook. But modest gains in employment income -- with average hourly earnings up 5 cents in December to $16.34 -- may help to heighten expectations that the Fed will soon be able to bring its 1-1/2-year rate-rise cycle to an end.

Financial markets were jolted by the payrolls data, uncertain how to interpret the report. U.S. Treasury bond prices initially were modestly lower as investors apparently worried that higher average earnings kept inflation fears alive. Stock futures rose on hopes that softer job growth might mean fewer interest-rate hikes.

Peter Cardillo, chief market analyst and chief strategist at SW Bach and Co. in New York, said December's job gain was solid.

"This is a fairly good number. Lower than expected but still showing that job creation growth is still intact," Cardillo said.

Economist Chris Low of FTN Financial in New York said the December report demonstrated the effectiveness of Fed policy over the past 1-1/2 years.

"They've raised rates enough to take some of the steam out of economic growth and hopefully prolong the expansion," Low said, and the key remaining risk was "if they continue to tighten they may overdo it."