U.S. employers added more workers to payrolls than forecast inDecember and the jobless rate declined to an almost three-year low,showing that the labor market gained momentum heading into2012.

The 200,000 increase last month followed a revised 100,000 gainin November that was smaller than initially estimated, LaborDepartment figures showed in Washington. The median projection in aBloomberg News survey called for a December gain of 155,000. Theunemployment rate unexpectedly fell to 8.5 percent, the lowestsince February 2009, while hours worked and earnings climbed.

Sustained payroll gains are needed to chip away at joblessnessand support household spending, which accounts for about 70 percentof the world's largest economy. At the same time, the financialcrisis in Europe and political stalemate over ways to pare the U.S.budget deficit are risks companies may hold back amid concern theexpansion will slow.

“It really does look like the economy is beginning to changegears as the labor market is firming,” Joel Naroff, president ofNaroff Economic Advisors Inc. in Holland, Pennsylvania, said beforethe report. “We started off 2011 with pretty solid job gains andthat looks like it could be the case in 2012 as well.”

Stock-index futures extended gains after the report, with thecontract on the Standard & Poor's 500 Index expiring in Marchclimbing 0.5 percent to 1,278.9 at 8:31 a.m. in New York. The yieldon the benchmark 10-year Treasury note rose to 2.02 percent from 2percent late yesterday.

Employers added 1.64 million workers in 2011, the best year forthe American worker since 2006, after a 940,000 increase in 2010.Even with the gains, little headway has been made in recovering the8.75 million jobs lost as a result of the recession that ended inJune 2009.

Bloomberg survey estimates of 86 economists for December rangedfrom increases of 80,000 to 220,000. Regular monthly revisions toprior reports subtracted a total of 8,000 jobs to payrolls inOctober and November.

The unemployment rate, derived from a separate survey ofhouseholds, was forecast to climb to 8.7 percent, according to thesurvey median. The decrease in the jobless rate from a revised 8.7percent in November reflected a decline in unemployment combinedwith a gain in Americans saying they were employed. The labor forcewas little changed.

Annual Revisions

Annual benchmark revisions to the household survey showed theunemployment rate averaged 8.9 percent in 2011, down from 9.6percent and 9.3 percent in the previous two years. It still markedthe worst three-year period since 1939 to 1941.

The labor participation rate held at 64 percent in December,today's report showed.

Private hiring, which excludes government agencies, rose 212,000after a revised gain of 120,000 in November. It was projected toclimb by 178,000, the survey showed.

Factory payrolls increased by 23,000, the strongest since July,after a 1,000 gain in the previous month. Manufacturing job growthlast year was the strongest since 1997.

Employment at service-providers increased 152,000, with a 50,200advance in the transportation industry that includes companies suchas FedEx Corp. Retail trade payrolls climbed 27,900 in December ascompanies kept hiring for the holiday shopping season.

Construction companies added 17,000 workers last month.Government payrolls decreased by 12,000 in December, reflectingcuts at the local government level.

Average hourly earnings rose 0.2 percent to $23.24, today'sreport showed. The average work week for all workers increased to34.4 hours.

The so-called underemployment rate — which includes part-timeworkers who'd prefer a full-time position and people who want workbut have given up looking — decreased to 15.2 percent from 15.6percent.

The report also showed a decrease in long-term unemployedAmericans. The number of people unemployed for 27 weeks or morefell as a percentage of all jobless, to 42.5 percent from 43.1percent.

“Sales are robust, merchandise margins are strong, operatingmargins are growing,” Alexander Smith, chief executive officer ofFort Worth, Texas-based Pier 1 Imports Inc., said on a Dec. 15conference call with analysts. “There's going to be a little morehiring in the first part of the year without a doubt.”

Holiday Sales

Other companies also saw increased demand last month during theholiday shopping season. Same-store sales at U.S. retailersexcluding Wal-Mart Stores Inc. rose 3.5 percent in December from ayear earlier, according to figures yesterday from the InternationalCouncil of Shopping Centers.

In the final three months of 2011, “clear signs emerged thatU.S. consumers are more confident and that other underpinnings ofour economy are either stable or slowly improving,” Don Johnson,vice president of U.S. sales for General Motors Co., said on a Jan.4 conference call.

Faster job gains than those generated in 2011 may be needed toreduce unemployment. That's one reason policy makers remainconcerned.

“While indicators point to some improvement in overall labormarket conditions, the unemployment rate remains elevated,” FederalReserve Chairman Ben S. Bernanke and other members of the FederalOpen Market Committee said in a statement at the conclusion of ameeting last month in Washington.

Bloomberg News

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