Robert Reich, the Labor Secretary, denied that the drop in unemployment would make for higher inflation. "I do not see any immediate threat of rising wages," he said. Mr Reich said rising productivity was more than enough to absorb wage rises. President Bill Clinton hailed the creation of new jobs, saying it showed there had been a real recovery in the economy.
Employment rose by 256,000 last month, far smaller than the revised estimate of 488,000 new jobs in November. But in manufacturing, where most factories are operating at full capacity, the increase in employment rose from 39,000 to 54,000.
Jobs were shed in construction and the public sector. The number of government jobs fell by 30,000, after a 76,000 increase in November. Average hourly earnings continued their upwards trend, reaching $11.26 - a level 2.7 per cent higher than a year earlier. Overtime worked in manufacturing increased.
The figures reinforced the case for the Federal Reserve Board to increase interest rates when its policy committee meets on 31 January and 1 February, according to analysts. John Shepperd, of Yamaichi International, said: "The US is a fully employed economy. There is no sign of a slowdown."
The Fed raised interest rates six times last year, taking the Federal funds rate to 5.5 per cent. A rise of at least another half point is widely expected at the beginning of next month.