Employers hired far fewer workers than expected in December, showing the world's biggest economy still struggling to gain momentum, but the unemployment rate dropped to a more than 1-1/2 year low.
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 economy with the purchase of $600 billion in government bonds.
Non-farm payrolls increased 103,000, below economists' expectations for 175,000. Private hiring rose 113,000, while government employment fell 10,000.
However, overall employment for October and November was revised to show 70,000 more job gains than previously reported. The unemployment rate fell to 9.4 percent, the lowest since May 2009, from 9.8 percent in November.
The separate household survey from which the unemployment rate is derived showed both an increase in employment and a decline in the labor force, which combined to lead to the biggest drop in the jobless rate since April 1998.
Economists raised their employment forecasts after payrolls processing company ADP Employer Services said on Wednesday private employers added 297,000 in December -- the largest gain on ADP records dating to 2000.
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.
U.S. stock index futures turned negative after the report, while Treasury debt prices erased losses.
Federal Reserve officials will weigh the jobs report when they meet on January 25-26.
SLOW LABOR MARKET RECOVERY
Though the labor market recovery remains very slow, the broader economy is showing signs of strengthening, with data on consumer spending and manufacturing improving.
The relatively upbeat data had led to calls for the U.S. central bank to scale back its widely criticized government 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.
Fed Chairman Ben Bernanke speaks on the economic outlook before the Senate Budget Committee at 9:30 a.m.
The big benefit here is that the unemployment rate dropped to 9.4 percent. I would categorize this as continued positive momentum and evidence that the economy is improving and growing, said Oliver Pursche, president at Gary Goldberg Financial Services in Suffern, New York.
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 Ryan Vlastelica in New York; Editing by Andrea Ricci)