(Adds details, market reaction)
* Nonfarm employment up 200,000 in December
* Private-sector payrolls up 212,000; govt down 12,000
* Unemployment rate falls to 8.5 pct from 8.7 pct
* Data confirms strengthening in U.S. recovery
By Lucia Mutikani
WASHINGTON, Jan 6 (Reuters) - U.S. employment grew
solidly last month and the jobless rate dropped to a near
three-year low of 8.5 percent, offering the strongest evidence
yet of an acceleration in economic activity.
Nonfarm payrolls increased 200,000 last month, the Labor
Department said on Friday, the most in three months and way
above economists' expectations for a 150,000 gain.
The economy needs to sustain the current pace of job
creation to signal a robust recovery is finally under way.
The unemployment rate dropped from a revised 8.7 percent in
November, which was previously reported as 8.6 percent. The
jobless rate is now the lowest since February 2009.
"This highlights that the U.S. economy is on its way to
recovery even as strains in Europe persist," said David Watt,
senior currency strategist at RBC Capital in Toronto.
U.S. stocks index futures extended gains on the data, while
prices for Treasury debt fell. The dollar rose against the euro.
Signs the labor market is gaining traction could offer some
comfort for the Obama administration, whose economic policies
are constantly attacked by the Republicans.
The state of the labor market could determine whether
President Barack Obama gets re-elected in November.
The report cemented views that growth in the fourth quarter
accelerated after a tepid performance in the first 9 months of
A string of better-than-expected U.S. economic indicators in
recent weeks has highlighted a contrast between the recovery in
the world's biggest economy and Europe, which is already widely
believed to be in recession and probably faces worse to come.
Though the payrolls count for October and November was
revised to show 8,000 fewer jobs created than previously
reported, there is no denying the labor market is recovering.
The separate household survey, from which the jobless rate
is derived, showed gains in employment and a modest decline in
the labor force, helping to lower the jobless rate.
A broad measure of unemployment, which includes people who
want to work but have stopped looking and those working only
part time but who want more work, dropped to an almost
three-year low of 15.2 percent from 15.6 percent in November.
Still, the economy needs even faster pace of job growth
over a sustained period to make a noticeable dent in the pool of
the 23.7 million Americans who remain either out of work or
underemployed since the end of the 2007-09 recession.
With the labor market still far from healthy, the debt
crisis in Europe unresolved and tensions over Iran threatening
to drive up oil prices, the U.S. economy faces stiff headwinds.
Economists predict the recovery will lose a step early this
year after expanding in the fourth quarter at what is expected
to be the fastest pace in 1-1/2 years.
This should keep alive the possibility of the Federal
Reserve embarking on a third round of asset purchases, or
quantitative easing, to spur stronger growth.
GOVERNMENT A DRAG
All the job gains in December came from the private sector,
where payrolls rose 212,000 - the most in three months.
Government employment contracted 12,000.
For all of 2011, the private sector added 1.9 million jobs,
while government employment fell 280,000.
A measure of the share of industries that showed job gains
during the month rebounded after falling sharply in November.
There were job gains in construction, where unseasonably
mild weather has boosted groundbreaking for new homes.
Construction payrolls increased 17,000 after falling 12,000 in
Transportation and warehousing also got a boost from the
mild temperatures, with employment jumping 50,200.
The bulk of the transportation increase came from the
courier and messenger industry, which rose 42,000, probably
reflecting gains from online purchases during the holiday
Manufacturing jobs rose 23,000, the largest gain since July.
Factory employment rose 225,000 last year.
Retail employment rose 27,900 after hefty gains in November
as retailers geared for a busy holiday shopping season.
Healthcare and social assistance increased 28,7000 after
rising 20,200 in November. But temporary hiring - seen as a
harbinger of future hiring - fell 7,500 in December after
Even though employment picked up last month, hourly earnings
rose a modest four cents, indicating that most of the jobs being
created are low paying. The high unemployment rate also means
wages cannot grow much.
This is a potentially troubling sign for consumer spending,
which has been largely supported by a reduction in savings.
The average workweek rose to 34.4 hours from 34.3 hours in
(Editing by Neil Stempleman)
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