Jobs growth will have to wait. The government reported this morning that the economy lost 85,000 jobs in December, well below analyst estimates for a flat report or a marginal increase in hiring.

Economists had hoped that the U.S. created more jobs in December than it lost for the first time in two years. But the latest report suggests the labor market may take a bit longer to heal. The unemployment rate stayed unchanged at 10%, the Labor Department said, and temp hiring was up marginally. But weekly hours worked were flat. And overall, the report was "very disappointing," says Ryan Sweet, senior economist for Moody's Economy.com. "It suggests the labor market won't come roaring back."

One factor that may have negatively impacted hiring was bad weather in December, with construction jobs down 53,000, well below forecasts. November's jobs figures were revised upward to a gain of 4,000, but Sweet says that now looks like an "outlier." The report damages confidence in the sustainability of the recovery, he says, and suggests "we have a long road ahead.".

If there's one silver lining it's that the Federal Reserve may now have more reason to delay hiking interest rates. The Fed typically raises rates only after unemployment has peaked in a cycle and then started to come down. Neither has happened yet, and economists expect the jobless rate to peak around 11% in the third quarter before ticking lower. The economy would have to generate over 150,000 jobs a month to significantly cut unemployment. And the last thing the Fed wants to do is nip a recovery in the bud and spark a double-dip recession. As for businesses, if they remain shell-shocked, says Sweet, "we may not see strong job growth until 2011."

This article is an excerpt from our Early Bird markets story, which was originally published the morning of Jan. 8.