The jobless rate rose to 5 percent in December, the highest in two years. The figure was 0.6 percentage point higher than March's 4.4 percent, which was the lowest reading of the expansion that began at the end of 2001.

"Since 1949 the unemployment rate has never risen by this magnitude without the economy being in recession,'' John Ryding, chief U.S. economist at Bear Stearns Cos. in New York, said in a note to clients.

Before the start of the last contraction in March 2001, the unemployment rate rose just 0.4 percentage point, according to Labor Department figures. The rate barely rose at all ahead of the 1990 - 91 downturn, one reason why economists consider it a so-called lagging signal.

The National Bureau of Economic Research, which determines when recessions begin and end, defines them as a "significant" decrease in activity over a sustained period of time. The declines would be visible in gross domestic product, payrolls, production, sales and incomes.

The reason other indicators, such as sales or payrolls, have yet to unequivocally signal a downturn has begun is because the U.S. economy has undergone significant structural changes.

Another key area that has yet to issue any alarms is consumer spending, which accounts for more than two thirds of the economy.

Spending figures in November were stronger than forecast even as gasoline hovered around $3 a gallon and property values slumped.

Today's jobs report also showed more industries were cutting payrolls than increased hiring last month. The so-called diffusion index dropped below 50, signaling contraction, for the first time since September 2003.

"It's not a good situation,'' said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. "It is certainly true that every time the unemployment rate has done what it did today, we are in a recession.''