The Labor Department had mixed news yesterday, depending on whether you're concerned about finding a job or about interest rates heading higher.

Its monthly snapshot of the nation's employment situation showed job growth slowing sharply, with employers adding just 113,000 new jobs last month, down from 124,000 in June -- the latest in a string of mediocre job gains in recent months.

The slowdown pushed the nation's unemployment rate up to 4.8 percent, the highest in five months.

"Companies are feeling the strain of rising costs for energy and raw materials as well as higher interest rates'' and thus "are reluctant to aggressively bulk up their payrolls," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.

But investors saw silver in the sluggishness, agreeing it provides enough ammunition for the Federal Reserve to stop raising rates when policymakers meet next week.

Wall Street rallied sharply on the report, but ended down on concerns the Fed may not be finished raising rates even if it doesn't act Tuesday when its rate-setting Open Market committee meets.

"I agree that for the first time in over two years, a Fed meeting will not end in a rate hike," said Stuart Hoffman, chief economist at PNC Financial Services Group, Downtown.

"Does that mean they are done? Not necessarily," he said. Mr. Hoffman believes the Fed will wait for more data on inflation and the strength of the economy and possibly nudge rates higher again in September or October.

Yesterday's jobs report was just the kind the stock market likes, Mr. Hoffman said, even if job-seekers don't.

It indicated that the slower growth is taking pressure off the Fed and interest rates, "but it's not like the economy is coming to a halt, so ...[corporate] earnings are going to grow," he said.

Others were less sanguine in their reading of yesterday's jobs report.

Peter Morici, a University of Maryland School of Business professor, worries that continuing inflation pressures will keep rates higher and may force the Fed to push them up more, further worsening the squeeze between slower job growth and higher rates.

"Stagflation has arrived,'' he said, noting that the combination of higher unemployment and higher interest rates has pushed the "misery index'' above 10 percent. He believes the slowdown in growth could turn into a recession if inflation trumps the Fed's concerns about the economy.

"All the inflation indicators are flashing yellow and may soon be flashing red," agreed Nariman Behravesh, chief economist at Global Insight.

Federal Reserve Chairman Ben Bernanke told Congress last month he was concerned about rising prices, but hoped a slowing economy would ease inflationary pressures.

Workers' average hourly earnings rose to $16.76 in July, 0.4 percent higher than in June and slightly faster than economists were expecting.

Wage growth is welcomed by workers. But a rapid and sustained pickup in wages, if not blunted by other economic forces, can touch off inflation fears.

For the past 12 months, wages have gone up 3.8 percent. But those wage gains are still trailing inflation, economists said.