STOCKS SLIDES ON JOB DISAPPOINTMENT

Stocks were sagging this morning after the Labor Department said job creation in December was much less than expected.

Most economists were hoping for gains of 150,000 jobs or more. Instead, the Labor Department said that jobs grew by 103,000.

The U.S. unemployment rate fell to 9.4%.  But that may not be good news. In fact, it reflects a work force decline of 260,000.  In other words, people stopped looking for work.

Federal Reserve Chairman Ben Bernanke said it may take four or five years for the jobs market to recover from the effects of the 2007-2009 recession. But the economy will be "moderately stronger in 2011 than in 2010, he told the Senate Budget Committee today.

At 11:35 a.m. ET, the Dow Jones industrials ($INDU) were down 57 points to 11,640. The Standard  Poor's 500 Index ($INX) dropped 8 points to 1,266, and the Nasdaq Composite Index ($COMPX) slid 15 points to 2,695.

Crude oil was up 73 cents to $89.11 a barrel. Gold was up 70 cents to $1,372.40 an ounce. Interest rates were lower, with the 10-year Treasury yield falling to 3.394% from 3.419% on Thursday. The dollar was higher against the euro, the yen and the Chinese yuan.

Hopes for big job gains are dashed
While the December gains were less than expected, the economy did create 384,000 new jobs in the last quarter of 2010, up from a decline of 269,000 a year earlier and a loss of 1.96 million jobs in the last quarter of 2008.

Moreover, nonfarm payrolls did grow by 1.1 million in 2010, compared with declines of 4.74 million in 2009 and 3.62 million jobs in 2008.

"The economy is still working through the overhang left over from the recession," Dan Greenhaus, chief economist at Miller Tabak in New York, told The New York Times.

The disappointment in today's report stems from Wednesday's ADP National Employment Report, which projected a 297,000-job increase in December. That estimate was nearly three times larger than expected and forced many economists to boost their estimates for today's report.

The reason for the divergence may lie in how ADP counts payroll employment, especially at the end of the year when tricky weather and temporary holiday jobs can distort numbers.

Bernanke offered a somber view of matters at the Senate hearing. The job market has "improved only modestly at best," he said, and "considerable time will likely be required before the unemployment rate has returned to a more normal level."

Stocks stumbling with a winning week
The jobs report came at the end of the first week of the year, and stocks appeared headed to modest gains for the week.

The Dow and S&P 500 appeared headed to their sixth straight weekly gains, with the Nasdaq up for the sixth week in the last seven. The Dow is up about 0.8% for the week, with the S&P 500 up 0.9% and the Nasdaq up 2%. Most of the gains, however, came on Monday.

The market was pulled lower by weakness in technology, telecom and, more importantly, financial stocks. Industrial, energy and materials stocks were the market leaders.