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Another Soft Jobs Number

Updated from 10:08 a.m. EST

The U.S. economy's ability to produce jobs continued to disappoint in January, with the Labor Department saying Friday nonfarm payrolls grew by 146,000 last month. The number sparked a bond rally as traders wagered that growth would be restrained in the third full year of economic recovery.

The rise in bond prices was briefly halted when Alan Greenspan was quoted from London saying that the U.S. trade deficit could narrow if the dollar remains weak. It has since resumed.

The Labor Department report was mixed, with the unemployment rate falling to 5.2% in January from 5.4% in December. Economists expected the economy to add 200,000 jobs and for unemployment to hold steady at 5.4%.

"We still can't seem to be able to create a significant number of jobs," said Steven Wood, chief economist with Insight Economics. "If we can't accelerate the number of jobs that we're creating, we're going to have difficulty generating income for workers, and that means that consumer spending is likely to slow and that economic growth this year is probably going to be slower than last year.

"At some point, that means the Fed is going to have to stop raising rates, but probably not before the middle of the year," Wood added.

But Richard Yamarone, chief economist with Argus Research, noted that the Labor Department's so-called household survey firmed in January, indicating strengthening employment in small businesses that don't show up the larger and better-known payroll sample.

"We've accepted the fact that growth is decelerating, and we expect the rest of the year to have 150,000 to 175,000 a month," said Richard Yamarone, chief economist with Argus Research. "We suspect also that activity will be very choppy, but that's why we talk about averages. It's not a surprise, and you've got to remember the economy is creating jobs, just not the payroll type.

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