Nearly 3 million jobs were added in 2014, and continued solid hiring is expected to propel the economy this year to its fastest growth in a decade. The gains are putting further distance between the strengthening American economy and struggling nations overseas.
"Last year was a truly breakout year for the labour market," said James Marple, an economist at TD Securities. "Businesses are increasingly looking to hire."
Friday's report from the Labor Department showed that employers added 252,000 jobs in December and 50,000 more in October and November combined than the government had previously estimated. The unemployment rate dropped to 5.6 per cent from 5.8 per cent in November. The rate is now at its lowest point since 2008.
The government's report did point to some weaknesses, notably in Americans' paychecks, which have barely kept ahead of inflation during the 5 1/2-year recovery. In December, average hourly pay actually fell.
"The continued listless performance of hourly earnings is an ongoing frustration," said Richard Moody, an economist at Regions Financial.
And one reason the unemployment rate fell last month had nothing to do with more hiring: Many of the jobless gave up looking for work and so were no longer counted as unemployed.
Still, while December's hiring did not match November's huge 353,000 gain, job growth in the final three months of 2014 averaged a robust 289,000. That was up sharply from the 239,000 average for the third quarter of 2014.
The unemployment rate is now near the 5.2 per cent to 5.5 per cent range that the Federal Reserve considers consistent with a healthy economy — one reason the Fed has been expected to raise interest rates from record lows by midyear.
Yet for now, the plummeting oil prices and weak pay growth are helping keep inflation even lower than the Fed's 2 per cent target rate. Many economists think inflation may fail to reach even 1 per cent this year. A result is that the Fed could feel pressure to avoid raising rates anytime soon.
"There is still room for stimulus without having to worry about inflation taking off," said Michael Strain, an economist at the American Enterprise Institute.
Most economists forecast that the U.S. economy will expand more than 3 per cent this year. If it does, 2015 would mark the first time in a decade that growth has reached that level for a calendar year.
In December, hiring was widespread across most industries. Construction firms added 48,000 jobs, the most since January. Manufacturers gained 17,000, restaurants and bars 44,000.
One industry where hiring slowed in December was retailing, which cut back after having staffed up in November for the holiday shopping season.
Overall, American businesses have been largely shrugging off economic weakness overseas and continuing to hire at solid rates. The U.S. economy's steady improvement is especially striking compared with the weakness in much of the world.
Europe is barely growing, and its unemployment rate is nearly double the U.S. level. Japan, the world's third-largest economy, is in recession. Russia's economy is cratering as oil prices plummet. China is straining to manage a slowdown. Brazil and others in Latin America are struggling.
Fears about significantly cheaper oil spooked investors earlier this week before financial markets recovered. But most economists remain optimistic that lower energy prices will benefit U.S. consumers and many businesses.
Though 2014 job growth was the best since 1999, other measures were less encouraging. Average hourly pay rose just 1.7 per cent last year, less than half the 3.6 per cent gain in 1999, a pace more typical of a strong economy.
Hourly wages fell to $24.57 in December from $24.62 in November. Hourly pay over the past two months has now risen just a penny.
As hiring ramps up and the unemployment rate falls, those pressures should, at least in theory, compel employers to raise pay to attract workers. But that trend has yet to emerge.
Consider CMIT Solutions, a fast-growing IT services company based in Austin, Texas, with 800 employees in 147 U.S. cities.
CEO Jeff Connally says his firm plans to add 80 to 120 jobs this year. But in most cities, he doesn't expect to have to raise pay to attract employees.
Despite weak pay growth, strong hiring is still providing much-needed relief to the unemployed. During 2014, the unemployment rate fell 1.1 percentage points, similar to 2013's decline of 1.2 points. But there was a crucial difference: Last year's drop occurred even though the number of Americans either working or looking for work rose by more than 1 million.
That's a welcome change from 2013, when the unemployment rate's decline was fueled by an exodus of about 500,000 workers. Those people gave up on their job hunts and were no longer counted as unemployed.
The job gains are healing some of the deep scars left by the recession. The number of people who have been unemployed for more than six months fell 28 per cent last year. And the number working part time who would prefer full-time work dropped 13 per cent.
Spending at retailers and restaurants rose in November by the most in eight months, an early sign that Americans are spending some of the savings they are enjoying from gas-pump prices.
AP Economics Writer Josh Boak contributed to this report.