Updated from 8:32 a.m. EST

The economy created 112,000 jobs in January, less than expected, after a revised 16,000 increase in December, according to a government report.

Economists had forecast an increase of about 165,000 in nonfarm payrolls, which is historically low for this stage of an economic recovery.

The government also reported that the unemployment rate fell to 5.6%, better than expected and down from the previous month's 5.7% rate.

Once again, the manufacturing sector showed weakness, losing another 11,000 jobs The retail sector added 67,000 jobs while the construction industry added 24,000.

Average hourly earnings rose 2 cents to $15.49. The average work week rose to 33.7 hours from 33.5 in December, but overtime was flat.

Job growth has been unusually weak in this economic recovery and economist have been hard-pressed to accurately forecast actual government figures.

The recent pickup in economic growth had led many economists to expect healthy, if not robust, job creation, but the government's original estimate of job growth in December's fell far short of forecasts at 1,000, renewing concerns about the so-called jobless recovery.

Economists say consistent and healthy job growth is essential to the sustainability of the recovery, which showed the economy growing at a 4% annualized rate in the fourth quarter of 2003. In addition, an expanding job market is considered important to consumer confidence, which drives spending. Recent surveys by the University of Michigan and the Conference Board showed that consumers remain worried about the job market, despite overall optimism about the economy.

Most other traditional indicators have pointed to a pickup in jobs. In particular, initial weekly jobless claims have remained below 400,000 -- thought to be the dividing line between growth and contraction in the labor market -- for 18 consecutive weeks. Recent surveys and comments from

Fed

have also referred to signs of improvement.

The weaker-than-expected jobs figure triggered sharp declines in the dollar, but boosted bonds and stocks.