National Unemployment Rate Unexpectedly Drops to 8.5%

The national unemployment rate fell to 8.5 percent in December in another sign that the U.S. economic recovery might be here to stay.

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Nonfarm payrolls increased by 200,000 last month, the Labor Department reported on Friday, the most in three months and well above economists’ expectations, while the jobless rate dropped to a near three-year low.

As suggested by yesterday’s ADP report, the private sector accounted for a significant rise in payrolls — adding 212,000 in December — while local, state, and national governments cut 12,000 jobs.

The unemployment rate fell 0.2 percent from an upwardly revised 8.7 percent in November, which was previously reported as 8.6 percent. December’s jobless rate is the lowest since February 2009.

The Labor Department’s household survey, from which the jobless rate is derived, showed gains in employment but also a modest decline in the total size of the labor force, helping to artificially lower the jobless rate further.

Still, more than 20 million Americans remain either out of work or underemployed, and though the last few months have brought with them many signs of recovery, the labor market is still far from healthy.

The sovereign debt crisis in Europe has a reach far greater than its borders, and now tensions with Iran threaten to drive up oil prices, with higher prices at the pump often resulting in a decline in consumer confidence and a pullback in spending.

Economists are predicting that the recovery will take a step backwards early this year after expanding in the fourth quarter.

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