We interrupt the news from Iowa to bring you the following message: there’s bad news on the economic home front in the form of today’s jobs report from the Bureau of Labor Statistics. Job growth stalled in December and the unemployment rate ticked up sharply. I’m afraid to say that we have an answer to the question as to when the overall economic headwinds will blow a chill on the labor market.

The unemployment rate jumped from 4.7% to 5% in December, and private sector payrolls fell by 13,000, the weakest month since July 2003, the end of the jobless recovery.

Though one month of particularly weak jobs data does not necessarily signal a new, negative trend, a broad set of indicators throughout today’s report suggest the weakening economy has finally reached the job market.

First, the jobless rate is up 0.6 of a percent over the past year, adding 895,000 to the jobless rolls. An uptick of this magnitude has historically been either a symptom or a harbinger of recession.

Second, though December’s net job gains were the lowest this year, and the lowest since the end of the jobless recovery four years ago, payroll growth has slowed since June, adding an average of 84,000 jobs per month, compared to 147,000 January-May of this year. While monthly values from the BLS Household survey (the numbers cited so far are from the payroll survey) are too volatile to be reliable, over the year, employment in this survey was essentially unchanged, up 0.2%.

Finally, hiring was weak across most industries. Less than half of private sector industries were expanding last month, the worst showing in over four years. The private service sector, the core sector of job growth in our economy, added only 62,000 last month, its lowest month since October 2005. Also, there was a very large jump—from 4.5 million to 4.7 million, the highest level in over four years—in persons working part-time who were unable to find full-time jobs.

The softening of the job market has predictably translated into weaker earnings growth for the 80% of workers who are blue-collar in manufacturing and non-managers in services. Hourly earnings, before inflation, were up 3.7% for the year, compared to 4.3% last year. Weekly earnings, which take into account hours worked per week, reveal greater deceleration, up 3.4% this year compared to 4.6% last year.

With consumer inflation running in the 4% range, this implies falling real wages for most workers. Given the decline in home values and the negative national savings rate, it is difficult to see how consumers will be able to provide the needed stimulus to keep the economy from falling into recession, if it hasn’t already.

While monthly payrolls can undergo significant revision, the negative findings from today’s report are consistent with the considerable slowing of the overall economy. The uptick in the unemployment rate alone, which won't be revised away, is flashing recession.

The most important course of action now is for policy makers to craft an economic stimulus package to jumpstart the stalled economy. Bush is already talking about it, and—surprise—it sounds like they’re thinking of using this as an opportunity to push for permanent tax cuts.

That’s exactly the wrong medicine for this ailment. Stimulative tax cuts are by definition temporary and the Bushies have a proven track record of targeting them at the wrong folks, anyway (i.e., rich people are not income-constrained, so you don’t get much stimulative bang-for-the-buck from them in this context).

What’s the right medicine? Again, based on the bang-for-the-buck criterion, it’s best to strengthen the Unemployment Insurance system and, especially in the light of the housing meltdown and the associated local revenue shortfalls, ratchet up Federal grants to the states. In coming days, EPI will be posting policy ideas in this area.