The nation's unemployment rate soared up to 5 percent in December with a drop in job growth as the economy succumbed to housing and credit troubles, the Labor Department reported Friday, highlighting fears of recession.

December nonfarm payrolls rose by 18,000 making it the worst year for job creation since 2003, the Labor Department said today in Washington. Private-sector payrolls fell by 13,000, the first decline in more than four years. The jobless rate increased to 5 percent from 4.7 percent in November and had previously been under 5 percent for the past 25 consecutive months.

The weak jobs report puts more pressure on the Federal Reserve to change course in order to prevent a recession. Earlier in the week, the Institute for Supply Management manufacturing index fell below the break-even 50 percent mark, dropping to a nearly four-year low.

Ahead of the report, the Fed was expected to cut its overnight lending rate by a quarter- percentage point later this month to further stimulate the economy, which has slowed significantly with the collapse of the housing market and turmoil in the credit markets.