Employers hired fewer workers than expected in December and a surprise fall in the unemployment rate to its lowest level in more than 1-1/2 years was in part due to people giving up the search for work.
The disappointing jobs growth figure reported by the Labor Department on Friday suggested the Federal Reserve would likely stay the course with its effort to support the world's biggest economy with the purchase of $600 billion in government bonds.
The department's survey of non-farm employers showed payrolls increased 103,000 last month, below economists' expectations for 175,000. Private hiring rose 113,000, while government employment fell 10,000.
A very disappointing number that reinforces the idea that we're in for a long, slow jobless recovery. The Fed simply cannot relent until they see unemployment at least below 9 percent, said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.
Tempering the disappointment, overall employment for October and November was revised to show 70,000 more job gains than previously reported.
U.S. stocks opened marginally higher, while Treasury debt prices erased losses on the data. The dollar initially slipped against the euro, but then reversed course.
The unemployment rate fell to 9.4 percent, the lowest since May 2009, from 9.8 percent in November. However, the drop in the jobless rate was mixed news.
A survey of households from which the unemployment rate is derived showed a big increase in employment but also a sharp decline in the labor force. Those factors combined to lead to the biggest drop in the jobless rate since April 1998.
Though the labor market recovery remains very slow, the broader economy is showing signs of strengthening, with data on consumer spending and manufacturing improving.
Federal Reserve Chairman Ben Bernanke, in congressional testimony prepared before the jobs data was public, sounded a slightly more optimist tone than in his last public remarks in early December.
We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold, the central bank chief told the Senate Budget Committee, without offering a view on the future course of monetary policy.
Data showing a firming in consumer and business demand had led to calls for the U.S. central bank to scale back its widely criticized bond-purchasing program aimed at keeping interest rates low to boost demand.
Some policymakers indicated in December they had a fairly high threshold for curtailing the stimulus program.
Some analysts looked at the drop in the unemployment rate as good news. However, the labor force participation rate, a measure of how many potential workers are actually in the job market, dropped to 64.3 percent, yet another fresh cycle low.
Yes, we are getting more people employed but we appear to be losing people into the woodwork -- not a good sign long term, said John Silvia, chief economist at Wells Fargo.
Employment gains in December were led by the private services sector, which saw payrolls rising 115,000 after gaining 84,000 in November. Retail jobs increased 12,000 after a surprise 19,400 slump in November when retailers reported their best sales in years.
Temporary hiring, seen as a harbinger of permanent employment, increased 15,900 after 31,100 in November.
The goods-producing sector shed 2,000 jobs in December after losing 5,000 in November, but manufacturing payrolls rose 10,000. Construction employment fell 16,000 after slipping 2,000 in November.
The average work week was steady at 34.3 hours. Average hourly earnings increased three cents in December.
(Additional reporting by Pedro da Costa and Emily Kaiser in Washington and Ryan Vlastelica in New York; Editing by Andrea Ricci)