The U.S. economy added jobs more rapidly than expected in December as Federal Reserve policymakers are keeping close tabs on the strength of the labor market ahead of their meeting later this month.

The Labor Department on Friday reported that employers added 256,000 jobs in December, well above the estimate from LSEG economists.

The unemployment rate came in at 4.1%, slightly lower than economists’ expectations.

The number of jobs added in the prior two months were both revised, with job creation in October revised up by 7,000 from a gain of 36,000 to 43,000; while November was revised down by 15,000 from a gain of 227,000 to 212,000. Taken together, those two months saw 8,000 fewer jobs created than previously reported.

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Private sector payrolls added 223,000 jobs in December, much higher than the 135,000 estimated by LSEG economists.

Wage growth was largely in line with expectations, with average earnings up 0.3% on a monthly basis and 3.9% from a year ago.

The manufacturing sector saw employment fall by 13,000 in December, a surprise decline when economists projected a gain of 5,000 jobs.

Health care added 46,100 jobs in December, with gains focused in home health care services (+15,200), nursing and residential care facilities (+14,000) and hospitals (+11,500). Health care added an average of 57,000 jobs per month in 2024, the same as the monthly average in 2023.

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The retail sector added 43,400 in December after it lost 29,000 jobs in November. Last month’s gains were focused in clothing, shoe and jewelry retailers (+22,600), general merchandise (+12,700) and health and personal care (+7,000). Retail lost jobs in building materials and garden equipment (-11,400).

Leisure and hospitality also added 43,000 jobs, above the average gain of 24,000 per month in 2024.

Government added 33,000 jobs in December, slightly lower than the monthly average for 2024 of 37,000 jobs per month. Last year saw slower growth in government jobs than in 2023, when the monthly average gain was 59,000 jobs.

Social assistance employment increased by 23,400 last month, most of which was in individual and family services (+17,000). The sector added an average of 18,000 jobs per month in 2024, slightly lower than the average of 23,000 in 2023.

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The labor force participation rate was unchanged at 62.5%, unchanged from a month ago, and it has remained in a narrow range of 62.5% to 62.7% since December 2023.

The number of people considered to be long-term unemployed, defined as being jobless for 27 weeks or more, was little changed in December at 1.6 million but is up by 278,000 from a year ago. The long-term unemployed accounted for 22.4% of all unemployed people last month.

Federal Reserve Chair Jerome Powell signaled the Fed may slow the pace of interest rate changes in response to labor market conditions and inflation data. (Seth Herald/Bloomberg via Getty Images / Getty Images)

December’s jobs report comes as the Federal Reserve is due to hold its next meeting in late January to discuss a potential rate cut. Fed Chair Jerome Powell signaled after the most recent 25-basis-point cut in December that policymakers may slow the pace of rate changes based on incoming labor market and inflation data.

“The surprisingly strong jobs report certainly isn’t going to make the Fed less hawkish,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. “All eyes will now turn to next week’s inflation data, but even a downside surprise in those numbers probably won’t be enough to get the Fed to cut rates any time soon.”

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The market’s expectations that the Fed will hold rates steady at its January meeting were reinforced by the December jobs report. The probability of the Fed keeping its target for the benchmark federal funds at a range of 4.25% to 4.5% rose to 97.3% on Friday, up from 93.6% a day ago.

“Today’s report serves as more evidence that the labor market remains steady, providing more cover to the Federal Reserve to take caution in the path of easing rates and more of the same to job seekers looking for signs of acceleration outside a few sectors which make up the bulk of job gains,” said Kory Kantenga, LinkedIn’s head of economics.