WASHINGTON — Businesses stepped up hiring in December, adding a net total of 103,000 jobs during the month and offering a little hope for a sustained improvement in the struggling U.S. jobs market.
The Labor Department said government jobs fell by 10,000 in December, but private employers — the backbone of the economy — boosted hiring, adding 113,000 jobs after a gain of 50,000 jobs in November.
The December job gains helped to drive down the jobless rate to 9.4 percent from 9.8 percent in the previous month, marking the largest one-month decline in the nation’s unemployment rate since April 1998. December’s jobless rate was the lowest since May 2009.
However, the drop in the unemployment rate for December can partly be explained by a drop in the number of people considered to be in the labor force. That could be because some people gave up on finding a job. A person is no longer counted as unemployed if they are no longer looking for work.
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The decline in the jobless rate will have an important psychological effect, noted Torsten Slok, an economist at Deutsche Bank.
“The Fed has been worried about the unemployment rate, so the further it gets away from 10 percent, I think that’s good news,” Slok told CNBC Friday.
December’s overall payroll gain was smaller than the 145,000 that economists predicted. Still, more people were hired in previous months than the government first estimated.
The government's revisions showed the economy added 210,000 jobs in October, above the previous figure of 172,000. November's total was revised to 71,000, up from 39,000.
Over the past three months, the economy has added an average of 128,000 jobs. That's just enough to keep up with the population growth. Nearly double is generally needed to significantly reduce the unemployment rate.
Speaking at a window manufacturing plant in Landover, Md., Friday morning, President Barack Obama said December’s job report shows a clear trend toward economic improvement and stronger growth. But he also cautioned the recovery will take time.
“This was a brutal recession we went through; the worst in our lifetimes, and it left a lot of destruction in its wake,” Obama said, adding that his administration “will not rest until we have fully recovered from this recession and we have reached a brighter day.”
Obama also announced the appointment of Gene Sperling as the new head of his National Economic Council.
In testimony before the Senate Budget Committee Friday morning Federal Reserve Chairman Ben Bernanke offered a more optimistic outlook for the economy, saying there is increasing evidence that a “self-sustaining” recovery is taking hold.
However, speaking on Friday's 103,000 job gains, Bernanke also said if that pace of job creation were to be maintained “you won't see sustained declines in the unemployment rate.”
Some economists had predicted a far more optimistic reading on the job market Friday after a private payroll firm estimated earlier this week that companies added nearly 300,000 jobs in December.
Also encouraging was a report Thursday that fewer people applied for unemployment benefits over the past month than in any four-week period in more than two years.
A decline in layoffs has consumers feeling better about the economy and spending more freely. This past holiday shopping season was the best in four years.
And a payroll tax cut that goes into effect this month will give Americans even more money in the new year. Economists expect that will boost economic growth and give businesses more confidence to hire.
“Consumers are no longer as concerned about their job security, and that’s giving them a little more confidence to go out and spend,” said Ryan Sweet, an economist at Moody's Analytics.
The economy needs to generate about 125,000 jobs a month just to keep up with population growth and prevent the unemployment rate from rising. More than double that amount is needed to reduce the rate.
Last year, the nation added an average of 86,500 jobs a month through November. The unemployment rate, meanwhile, actually rose — from 9.7 percent in January to 9.8 percent in November.
But many economists expect hiring to ramp up in 2011. Goldman Sachs projects that employers will add 2.2 million jobs this year, or about 180,000 a month, double last year's amount. Moody's Analytics puts the figure at about 250,000 per month.
Still, the recession left a deep hole in the job market. More than 7.3 million jobs were eliminated during the downturn. Most economists expect the unemployment rate will still be near 9 percent by the end of 2011.Story: Jobless rate likely to fall further, but slowly
Fewer people said they were out of work last month. The number of unemployed fell by more than 500,000 to just under 14.5 million, the lowest since April 2009.
The unemployment rate has topped 9 percent for 20 months, the longest such streak on record. And even with last year's job gains, the unemployment rate fell only from 9.7 percent to 9.4 percent.
Through all of 2010, the nation added 1.1 million jobs, or an average of 94,000 jobs a month.
The health care and leisure and hospitality sectors showed the strongest job gains last month. Health care added about 36,000 jobs, while restaurants and hotels hired more than 29,000 new workers.
Retailers added 12,000 net new jobs, and manufacturers 10,000. The bleeding continued in construction, which cut 16,000 jobs.
Including those who are working part-time but would prefer full-time work, and those who have given up looking for work, the underemployment rate was 16.7 percent last month. That's down from 17 percent in November.
The Associated Press and Reuters contributed to this report.