U.S. jobs picture improves

A burst of hiring in December pushed the U.S. unemployment rate to its lowest level in nearly three years, giving the economy a boost at the end of 2011.

Employers added a net 200,000 jobs last month and the unemployment rate fell to 8.5%, the lowest since February 2009, according to the Labor Department. The rate has dropped for four straight months.

Read: Canadian unemployment rate rises

In the United States, the hiring gains cap a six-month stretch in which the economy generated 100,000 jobs or more in each month. That hasn’t happened since April 2006.

“We see this employment report as further evidence of labor market improvement, consistent with the acceleration in the U.S. economy in the second half of last year,” says Michael Gapen, director, U.S. economic research at Barclays Capital.

“However, we believe that the rise in December payrolls likely overstates the degree of labor market improvement and we suggest that investors focus on the three-month average when evaluating the state of labor market conditions.“

For all of 2011, the economy added 1.6 million jobs, better than the 940,000 added in 2010. The unemployment rate averaged 8.9% last year, down from 9.6% the previous year.

Economists forecast that the job gains will top 2.1 million this year.

Even better…

The December report painted a picture of a broadly improving job market. Average hourly pay rose, providing consumers with more income to spend. The average work week lengthened, a sign that business is picking up and companies may soon need more workers.

Hiring was strong across almost all major industries.

Manufacturing added 23,000 jobs, as did the health care industry. Transportation and warehousing added 50,000 jobs. Retailers added 28,000 jobs. Even the beleaguered construction industry added 17,000 workers.

More jobs and higher pay are crucial to helping the economy grow. They could enable shoppers to increase spending, which fuels 70% of economic activity.

The economy likely grew at an annual rate of above 3%, a healthy pace.

A more robust hiring market coincides with other positive data that show the economy ended the year with some momentum.

Weekly applications for unemployment benefits have fallen to levels last seen more than three years ago. Holiday sales were solid. And November and December were the strongest months of 2011 for U.S. auto sales.

Many businesses say they are ready to step up hiring in early 2012 after seeing stronger consumer confidence and greater demand for their products.

Now the bad news

The job market has a long way to go to recover from the Great Recession, as the U.S. has 6 million fewer jobs that it did in December 2007.

In addition to the more than 13 million who were unemployed in December, many more are struggling to secure full-time jobs. The official unemployment number does not include those who have stopped looking for work.

When including those groups, the broader “underemployment” rate was 15.2%. That’s down from 15.6% the previous month, but still high. The figure has dropped for three straight months.