WASHINGTON — The nation's unemployment rate jumped to 4.2 percent in January, the highest level in 16 months, as the sharp economic slowdown resulted in a loss of 65,000 manufacturing jobs.

        The Labor Department's unemployment report Friday nevertheless offered a ray of hope that the country can avoid a full-blown recession, showing surprisingly strong job growth in construction and other areas.

        Economists viewed the report as depicting an economy weak but not in danger of a free-fall. They were encouraged that overall payrolls increased last month at three times the expected amount, by 268,000 new jobs, the strongest showing in nine months.

        “Most of the really alarming data has related to the manufacturing sector, which clearly is slumping, but since it only accounts for about 15 percent of total employment, it isn't dragging everything else down,” said Bill Cheney, chief economist for John

        Hancock Financial Services.

        The 0.2 percentage-point rise in January's unemployment rate from December's 4 percent rate marked the biggest one-month jump since April 1999. The last time the jobless rate stood at 4.2 percent was in September 1999. Many analysts had expected a January rate of 4.1 percent.

        The red-hot economy during the first half of 2000 helped keep the nation's unemployment rate low, and during three months of last year it reached its lowest point in a generation, 3.9 percent.

        “The slowing economy is finally taking its toll on the labor market. Conditions for workers are less stable than they were a quarter or a year ago,” said Jared Bernstein, economist with the Economic Policy Institute, a think tank partly funded by organized labor.

        Average hourly earnings showed no change in January, remaining at $14.02 an hour, a byproduct of the slowing economy. The length of the average work week, which posted a big drop in December, rebounded slightly to 34.3 hours in January.

        Even with the sharp rise in unemployment, payroll growth posted a sizable gain of 268,000 in January. More than half of that came from an increase of 145,000 jobs in construction, aided by mild weather during the month.

        Merrill Lynch's chief economist, Bruce Steinberg, said the report “points to a sluggish, but not recessionary, economy.”

        Manufacturing was the hardest-hit sector, losing 65,000 jobs last month, the largest decline in five months, and bringing total factory losses to a quarter-million since June. Automakers posted the biggest decline, 38,000 jobs, as they tried to trim production in the face of slumping sales.

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