Updated

The U.S. economy created 157,000 new jobs in December, slightly fewer than expected, but more jobs were created in each of the two prior months than previously thought, the Labor Department (search) reported on Friday.

Job growth for 2004 as a whole was the best since 1999 — enough to persuade financial markets that U.S. interest rates still are headed higher in 2005.

"2004 didn't go out like a lion, but it didn't go out like a lamb," said Ken Mayland, president of ClearView Economics. "It went out like a cow: beefy but docile. These aren't great results, but they're not tepid either. They're kind of in between."

The December jobs figure came in below Wall Street economists' forecasts for 175,000 new jobs. However, it followed upwardly revised totals of 137,000 jobs in November and 312,000 in October that previously were reported as 112,000 and 303,000 respectively.

"The revision washed out the slight negative surprise," said Greg Anderson, a currency strategist with ABN AMRO in Chicago. That was apparent in bond markets, where prices initially ticked up on hopes weaker job growth might forestall interest-rate rises but then settled back as traders concluded that overall, the data was not likely to hold the Federal Reserve (search) back.

President Bush called it "a very positive set of numbers" that are proof the economy is growing. "That's positive news," he said at the end of a meeting with the leaders of a bipartisan panel he's tasked with recommending reforms to the tax code.

The Fed's policysetting Federal Open market Committee (search) next meets Feb. 1-2 and is expected to push rates up another quarter percentage point at that time and, in the view of many analysts, to keep doing so at subsequent meetings through the first half of 2005.

In currency markets, the dollar was softer against the euro and the yen.

The U.S. unemployment rate (search) in December was unchanged at 5.4 percent.

Jobs have been created for 16 straight months through December. During 2004 as a whole, 2.2 million new-hires were added to payrolls — a turnaround from 2003 when 61,000 jobs were lost overall — and the strongest performance since 1999 when some 3.2 million jobs were created.

Lisa Finstrom, a currency analyst with Citibank in New York, said the employment data were consistent with a market expectation of rising interest rates.

"People were looking at 150,000 jobs per month as a good pace of job creation for the economy," Finstrom said. "We're sticking near that area. So the Fed continues tightening."

The service sector continued to spark overall hiring in December. But the job growth was concentrated in the health care industry, which added a net 36,000 positions, and business and professional services, which hired a net 41,000 workers.

As the holiday shopping season got in full swing, retailers ended up shedding almost 20,000 jobs overall. Analysts note that the figures are seasonally adjusted and subject to big fluctuations during that time of the year.

"Because of retailers' trepidations about this holiday selling season, they didn't do the usual amount of seasonal hiring," Mayland said.

The good news is the seasonal layoffs that occur in January and February should be moderate this time, he said.

Reuters and the Associated Press contributed to this report.