Feb. 2 (Bloomberg) -- Employers in the U.S. added fewer workers than forecast last month and the jobless rate rose, evidence of an economy growing at the moderate pace predicted by the Federal Reserve.

The 111,000 increase followed a 206,000 rise in December that was larger than previously estimated, the Labor Department reported today in Washington. The unemployment rate climbed to 4.6 percent, the first increase in three months, while gains in pay slowed. Separate reports showed factory orders and consumer confidence rose.

The numbers may relieve some policy makers, including San Francisco Fed President Janet Yellen, who have warned that a tight labor market could boost wages and spur inflation. The figures cap a week of reports showing the economy bouncing back from last year's slowdown without an accompanying surge in prices.

``It's a little softer on payrolls, but it's good news on wage inflation from the Fed's point of view,'' said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. ``The trend in jobs still looks good, and it's occurring without additional pressures on wages, so that is scripted to perfection for the Fed.''

Investors responded initially by selling the dollar and pushing Treasury notes higher. The swings were later reversed as traders concluded that revisions to job growth in the two prior months more than made up the difference between the January gain and the median forecast of economists surveyed by Bloomberg News.

Revisions

Economists projected payrolls would rise by 150,000 in January after a previously reported 167,000 December increase, according to the median estimate of 82 forecasts in a Bloomberg News survey. November job growth was also revised higher.

``We did have a big upward revision to the two previous months which makes that about a wash,'' said Scott Brown, senior economist at Raymond James & Associates Inc. in St. Petersburg, Florida.

Separately, the Reuters/University of Michigan final index of consumer sentiment rose to 96.9 in January from 91.7 in December. The figure compares with a preliminary reading of 98 released on Jan. 19. Factory orders increased 2.4 percent in December, the Commerce Department said, double the 1.2 percent gain in the prior month.

``Consumers really celebrated the decline in gas prices,'' Richard Curtin, the sentiment survey's director, said in an interview from Ann Arbor, Michigan. ``Many consumers think the worst is over'' for the housing market.

Role of Weather

Weather last month may have restrained job gains is some areas and boosted it in others, economists said. The Labor Department said 386,000 people weren't able to work because of bad weather during their survey week, compared with a median of 289,000 the previous 6 years. Before the report, economists had projected unseasonably mild temperatures in early January would boost the payroll figures.

``Overall the report shows two weather effects,'' said Drew Matus, a senior economist at Lehman Brothers Holdings Inc. in New York. ``The first boosted construction employment due to good weather in the Northeast.'' Bad weather in other parts of the country may have been behind the increase in joblessness, a drop in the workweek and smaller wage gains, Matus said.

Workers' average hourly earnings rose 3 cents, or 0.2 percent, after increasing 0.4 percent the previous month, today's Labor Department report showed. Economists expected a 0.3 percent increase in hourly wages. Earnings were up 4 percent from January 2006, less than in the previous month.

Annual Payroll Revisions

With today's report, the department revised the payroll numbers after reviewing more complete tax data not available earlier from state unemployment insurance programs and making adjustments to its estimates of seasonal hiring patterns.

The revision added 754,000 jobs to the previous estimate for the year ended March 2006, the biggest revision since Labor started adjusting the figures in 1991.

Service-producing industries, which include banking, insurance, restaurants and retailers, hired 104,000 more workers last month after adding 209,000 in December, the report showed. The increase was led by a 31,000 gain among education and health service companies.

Manufacturers reduced payrolls by 16,000 last month after cutting 18,000 jobs a month earlier. Employment at motor vehicle and parts producers slumped 22,500. The factory workweek dropped to 40.8 hours and overtime fell to 4.1 hours from 4.2 hours.

Construction companies added 22,000 workers after a 10,000 increase the prior month. The gain reflected increased hiring of nonresidential specialty trade contractors and workers at heavy construction and civil engineering companies.

Hours Worked

Average weekly hours worked by production workers fell to 33.8 from 33.9. Economists in the Bloomberg survey had forecast hours would hold at 33.9.

Average weekly earnings dropped to $577.64 last month from $578.33 in December.

Atlanta-based Home Depot Inc. said this week it plans to hire about 15,000 full- and part-time workers in the spring for its peak season, about the same number as the world's biggest home-improvement retailer took on last year.

Starbucks Corp., the world's largest coffee-shop chain, plans to open 2,400 new stores this year, or more than six stores a day on average. At that pace, the company would be hiring as many as 350 new employees each day.

``Sometimes I worry that we're not going to have enough'' new workers, Jim Donald, the Seattle-based company's chief executive officer, said Jan. 31.

Consumer Confidence

More jobs are helping boost U.S. consumer confidence, which last month approached a five-year high, according to a Jan. 30 report from the New York-based Conference Board. The proportion of Americans who said jobs were plentiful was the highest since August 2001.

Consumer spending, which accounts for about 70 percent of the economy, propelled a rebound in growth last quarter. The economy grew at a 3.5 percent annual rate in the final three months of 2006, up from a 2 percent pace in the prior three months, as spending rose the most since early 2006.

``Recent indicators have suggested somewhat firmer economic growth,'' the central bank's policy making Federal Open Market Committee said Jan. 31. The statement also said that ``the high level of resource utilization has the potential to sustain inflation pressures.'' Economists consider the unemployment rate as the primary gauge of ``resource utilization.''

The Fed left its benchmark interest rate at 5.25 percent for the fifth straight time when it met in Washington this week.

Because fewer people are entering the labor force than in years past, smaller payroll gains are needed to keep the unemployment rate steady. Fed Bank of Chicago President Michael Moskow has said the figure is probably closer to 100,000 than the 150,000 economists used to consider the threshold.

To contact the reporter on this story: Joe Richter in Washington Jrichter1@bloomberg.net

Last Updated: February 2, 2007 14:56 EST