Updated from 8:53 a.m. EDT

The Labor Department reported that the U.S. economy added 113,000 nonfarm payrolls in July. This falls short of consensus expectations for 145,000 new jobs in the month, and marks the fourth consecutive month of soft payrolls. The economy added 121,000 jobs in June, 92,000 in May and 112,000 in April. The unemployment rate jumped to 4.8% in July, higher than the 4.6% expectations.

The headline data is bullish for stock and bond investors who had relied on the report to confirm their expectations that the

Federal Reserve

will not raise rates next week. Although average hourly earnings rose by a higher-than-expected 0.4%, the payroll data suggest the economy is cooling, which Fed Chairman Ben Bernanke has argued will help stamp out inflation.

"It is now clear that a real trend slowdown is under way, and the softness in help wanted and hiring of temp staff points to further weakness ahead," says Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Stock index futures recently showed the S&P 500 trading 10 points above fair value, and the Nasdaq 100 was set for a 13-point gain. The bond market rallied as well; the 10-year Treasury note was recently up 14/32 to yield 4.90%.

In other market reaction to the jobs data, the dollar fell, recently trading at 114.32 yen vs. 114.93 late Thursday. The euro was trading at $1.2876 vs. $1.2807. Gold futures rallied 1.1% to $664.80 per ounce in Comex trading.

The payrolls report was a key indicator for the Fed, which has indicated it would like to pause next Tuesday after 17 consecutive 25-basis-point rate hikes that have taken the fed funds rate from 1% in June 2004 to 5.25% currently.

The fed funds futures market erased most of its uncertainty about the Fed's course next week upon the data's release. Odds of a hike next Tuesday fell to 18.5% from 42% immediately, essentially baking in a pause, according to


. The fed funds futures market still does, however bet there will be another rate hike sometime this fall.

Some economists are not so excited about the report, however, as rising wages amid four months of rising consumer prices and a slowing economy point to stagflation. "Rising wages provide a clear sign that oil inflation is spreading into the labor market, even as unemployment rises," says Peter Morici, professor at the University of Maryland School of Business, and former chief economist at the U.S. International Trade Commission.

That said, both Morici and Shepherdson agree with the markets that the Fed will likely pause on the heels of this data.