Hiring practically stalled in December, driving the nation's unemployment rate up to a two-year high of 5 percent and fanning fears of a recession.

Employers last month added the fewest new jobs to their payrolls in more than four years, according to the employment report released Friday by the Labor Department. The report showed that employment conditions are deteriorating, strained by a housing slump and credit crunch that are sapping economic strength.

"The economy is getting hit by some body blows. The big question is whether the economy can withstand it or will it take a fall," said Ken Mayland, president of ClearView Economics.

The unemployment rate jumped from 4.7 percent in November to 5 percent in December, the highest since November 2005 after the Gulf Coast hurricanes dealt the country a mighty blow. Total payrolls -- both private employers and government -- grew by just 18,000 last month, the worst showing since August 2003, when the economy suffered job losses as it struggled to recover from the 2001 recession.

On Wall Street, the stocks tumbled. The Dow Jones industrials were down more than 200 points in afternoon trading.

With the odds of a recession increasing, President Bush is exploring a package to stimulate the economy. The president, who has been coping with low marks for his handling of the economy, isn't expected to make any decisions until later this month; He delivers his State of the Union address to the country on Jan. 28.

The White House stressed Friday that it is on top of the situation. "You have to be persistent in looking at what the threats are to economic growth and stay after them," said deputy press secretary Tony Fratto.

The health of the nation's job market is a critical factor in determining whether the economy will survive the stresses from housing and harder-to-get credit. The positive forces of job and wage growth have helped to cushion individuals from all the negative forces in the economy. The big worry is that people will clamp down on their spending and businesses will put a lid on investment and hiring, throwing the economy into a tailspin.

Average hourly earnings for jobholders rose to $17.71 in December, a 0.4 percent increase from November. Economists were forecasting a modest 0.3 percent gain. For all of 2007, wages increased 3.7 percent, down from a 4.3 percent gain in 2006.

Many analysts believe the economy slowed sharply in the final three months of this year to a pace of around 1.5 percent or less. Growth in the January-to-March period also is expected to be weak. Alan Greenspan, former chairman of the Federal Reserve, recently warned that the economy is "getting close to stall speed."