Jobless Rate Falls to 8.5 Percent, Lowest in Nearly Three Years

Dec. 2, 2011: People wait in line to enter a job fair in Portland, Ore. (AP)

WASHINGTON – The nation's unemployment rate fell to its lowest level in nearly three years at the end of 2011, as a burst of private-sector hiring helped sustain what has been a positive trend lately in the job market.

The rate, which dipped to 8.5 percent in December, has dropped for four straight months. The direction of the numbers could help soften the political blow of what remains a tough economy for President Obama, who is charging into a competitive re-election year.

Republicans cited Friday's report as good news but accused Democrats of ignoring the GOP's prescription for even better employment growth. And Republicans continued to remind voters that the rate remains above 8 percent -- the level that Obama's team once promised would represent the ceiling on unemployment with the passage of the 2009 stimulus package.

"It went past 8 percent, and it hasn't been back since," presidential candidate Mitt Romney said at a campaign stop in South Carolina on Friday.

"It's good news that more Americans found work last month despite a sluggish economy, but both parties must come together and do more to address the ongoing uncertainty that small businesses face," House Speaker John Boehner said. "Today marks the 35th consecutive month of unemployment above eight percent, and too many Americans continue to struggle to find their next job."

Boehner complained that the Democratic-controlled Senate in 2011 held up nearly 30 "jobs bills" passed by the House, while urging the White House and Senate to work with Republicans in early 2012 to craft a yearlong payroll tax cut extension -- lawmakers last month hammered out a two-month measure.

The White House, too, called for a longer-term extension of the payroll tax cut.

"We have made real progress -- now is not the time to stop," Obama said Friday.

On the White House blog, Council of Economic Advisers Chairman Alan Krueger called on Congress to pick up on other proposals left over from the president's so-called American Jobs Act.

"Today's employment report provides further evidence that the economy is continuing to heal from the worst economic downturn since the Great Depression. It is critical that we continue the economic policies that are helping us to dig our way out of the deep hole that was caused by the recession that began at the end of 2007," he wrote.

The drop in the unemployment rate, now the lowest since February 2009, was driven by a net payroll increase of 200,000 in December. The rate also came down in part because the size of the labor force shrank by 50,000.

But Krueger stressed that the drop was "mostly due to employment growth, not lower labor force participation."

Many who are unemployed have stopped looking for jobs. The government only counts people as unemployed if they are actively searching for jobs.

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

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.

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 percent last year, down from 9.6 percent the previous year. Economists forecast that the job gains will top 2.1 million this year.

Obama appears bound to face voters with the highest unemployment rate of any sitting president since World War II. Unemployment was 7.8 percent when Obama took office in January 2009.

Still, the level may matter less to his re-election chances if the rate continues to fall. History suggests that presidents' re-election prospects hinge less on the unemployment rate itself than on the rate's direction during the year or two before Election Day.

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. And hiring was strong across almost all major industries.

Manufacturing added 23,000 jobs. Transportation and warehousing added 50,000 jobs.

Retailers added 28,000 jobs. Even the beleaguered construction industry added 17,000 workers.

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.

The Associated Press contributed to this report.