Employers stepped up hiring last month, pushing the unemployment rate to its lowest level in nearly three years and suggesting that the U.S. recovery is gaining traction despite surging oil prices and European turmoil.
The government said the economy added 200,000 jobs in December, double November's pace and all of it coming from the private sector, while the politically salient unemployment rate fell to 8.5% from November's revised 8.7%.
The drop in the jobless rate carries strong implications for the presidential race, altering the arguments that President Barack Obama and his rivals are laying out as they present different views the recovery. The White House cited Friday's report as evidence that the economy is healing, enabling the president to argue that his policies are working. Republicans, however, noted that joblessness remains higher than what the White House projected it would be and that this is proof that the Democrats have mishandled the economy.
Signs of a modest jobs recovery pose a political risk for the Republicans running to unseat Mr. Obama, as most of them have seized on the country's high unemployment rate as a leading argument in their case against the president. One challenge: blaming Mr. Obama for the slow pace of recovery without looking like they're cheering for another downturn.
Former Massachusetts Gov. Mitt Romney, more than any of the GOP hopefuls, has built his campaign around the idea that his private-sector experience gives him the tools to reinvigorate the economy. In stump speeches, Mr. Romney criticizes the president for weighing down the economy with needless regulations and costly new programs that add to the country's swelling debt burden.
"He has failed to put Americans back to work," Mr. Romney told South Carolina voters on Friday during a brief detour from New Hampshire, where he is set to return Friday night. "Remember, it was early in his administration, he said, 'Look, if you let me borrow $787 billion, why I will be able to keep unemployment from going above 8%. Well, it went past 8%, and it hasn't been back since, three years later."
Former Sen. Rick Santorum, another Republican hopeful, called the jobs report "good news," while campaigning in New Hampshire. But he added, "I'd like to see that labor force participation go up a lot more, which is continuing to be problematic."
President Obama, who has refrained from commenting on the monthly labor report for much of the past year, offered an upbeat take on the economy.
"We're starting to rebound. We're moving in the right direction. We have made real progress," he said Friday, noting that more private-sector jobs were created in 2011 than in any year since 2005. "We're creating jobs on a consistent basis."
White House officials are wary of the president seeming overly optimistic about the monthly report when many Americans still don't feel the benefit in their daily lives, including those who are making less than they once did, and because Mr. Obama's opponents could use his words against him if the jobs numbers slip in the future, as has happened before.
The Obama campaign is highlighting the numbers to rebut Mr. Romney's charge that he has created more jobs in his career than Mr. Obama has as president.
Some Republican voters in New Hampshire don't credit Mr. Obama for the recent uptick, but are concerned it may blunt the central argument against him. Rick MacMillan, a Romney supporter from Dublin, N.H., said Friday's jobs report was "great news" that happened despite Mr. Obama's efforts. The 66-year-old Republican said more great news could be problematic for the GOP in November, since it would take the economy off the table of political issues.
Mr. Obama "may be the beneficiary," Mr. MacMillan said. "Let him take credit for it. Why shouldn't he?"
The good news was tempered by the fact that the labor market still faces big challenges. More than 13 million workers are jobless and it will take years—even if job creation accelerates sharply—to whittle down that number. And the U.S. remains vulnerable to setbacks if the crisis in Europe deepens and spreads or surging oil prices pinch consumers and companies.
Highlighting this risk, investors shrugged off the good news about U.S. jobs on Friday as they weathered bad news from across the Atlantic, including a report that euro-zone joblessness has hit a record above 16 million, covering 10% of the region's work force. The Dow Jones Industrial Average fell 55.78 points to close at 12359.92.
"We're definitely getting a little better if you pan out to a wide view," says Stephen Stanley, chief economist at Pierpont Securities, adding that the labor market appears to be "considerably stronger" than where it was three months ago. "But this is still definitely a subpar recovery by historical terms."
The report could raise the bar a bit for the Federal Reserve as officials consider whether to take additional steps to boost economic growth. The Fed's quarterly economic projections, last computed in November, didn't foresee the unemployment rate at 8.5% until the end of 2012. Still, officials worry about downside risks to growth and about the sustainability of a burst of output in the fourth quarter. New York Federal Reserve Bank President William Dudley said Friday the central bank should continue to evaluate the need for more stimulus, because unemployment remains "unacceptably high."
Details in Friday's report suggest the upturn in the job market is filtering out through the economy. Workers' hours increased, as did their wages, developments that could lead to more consumer spending. The new jobs were scattered over a range of industries, including manufacturing, retail, and even the battered construction sector, which was aided by unseasonably mild weather.
The sector that added the most jobs was transportation and warehousing, which was up 50,000. But economists noted this number could be deceptive. Many of these jobs were added at courier services such as UPS, which are likely to shed many workers added for the holiday rush. Seasonal swings are supposed to be factored into the calculations. But economists believe the rapid rise of e-commerce has overwhelmed that adjustment process and that many of the jobs added in this sector could be scratched in January.
One of the strongest sectors throughout the recovery has been health care, which grew by 23,000 in December and has added a total of 315,000 for the year.
Among those is Aspen Dental Management Inc., a privately owned company based in Syracuse, N.Y., that intends to hire 700 workers this year as part of a plan to open 60 locations across the country. The company, which offers services for lower-income patients, has continued growing even in a slower economy as families sought more affordable options, said CEO Bob Fontana.
Mr. Fontana said business closely tracks how consumers feel about the economy: When consumer confidence improves, so do office visits. Business dipped during the summer amid fears that the U.S. was headed into another recession, but then picked up. "December was one of our best months and above our plan," he said.
Chapin Davis Investments, a Baltimore company that provides financial advice, had largely held off on hiring in the past year due to uncertainty about the economy and gyrations in the stock market. The company hired two employees this week and plans to hire six more this year.
Until now, the company has kept its expansion in the "planning stage," waiting for a "light at the end of the tunnel" before proceeding, said Stephanie Elliott, chief operating officer. Now, "there's that light. Things are progressing," she said.
Even as some companies step up hiring, governments have continued to shed workers. Public agencies cut 12,000 workers in December, with most of those cuts at the local level.
Meanwhile, some Americans who have spent months looking for a job are starting to see their efforts pay off. Alex Falconer, 43, starts Monday as a salesman for a Chicago-area logistics company. He has been out of work since the fall of 2010, when he quit his job as a marketing manager for a small wine shop to seek work at a larger company.
Mr. Falconer networked for months, and by November and December, he was getting job interviews weekly, which he viewed as a sign that the labor market had improved.
"Companies are hiring," Mr. Falconer said. "They're being very selective and very diligent in how they go about it."
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