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Jobs report dampens US recession speculation

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December payrolls up 292,000

Surprisingly strong jobs growth dashes some fears the U.S. is heading toward recession and leaves the Federal Reserve on track to raise interest rates — barring a global financial meltdown.

The 292,000 jobs created in December was a surprise to economists who were expecting closer to 200,000 nonfarm payrolls. The unemployment rate was unchanged at 5 percent, as expected, but average hourly wages were flat when economists expected a pickup of 0.2 percent.

"It's a report that says to the market, if you're worried about a recession, that's ridiculous. If you're worried about the Fed, there's nothing to worry about. It's the best of both worlds for the markets and the Fed," said John Canally, economist and market strategist at LPL Financial.

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While economists see soft U.S. growth at an average 1.3 percent for the fourth quarter, they see a return to growth of above 2 percent in the first quarter. Manufacturing has been a soft spot and ISM surveys show that it is in contraction.

Barclays said fourth quarter GDP was tracking at just 0.7 percent, after November wholesale inventories later Friday showed a drop of 0.3 percent and October was revised to reflect the same decline.