Glenn Somerville, WASHINGTON (Reuters) - U.S. payrolls grew by a smaller-than-expected 108,000 in December but the addition of more than 2 million jobs in 2005 had Bush administration officials boasting about the economy's vigor.
In its monthly report on employment, the Labor Department on Friday revised up its estimate of November new jobs to 305,000 -- the best monthly showing since April 2004, leaving an impression of solid labor market prospects entering 2006.
"In 2005 the American economy turned in a performance that is the envy of the industrialized world, and we did this in spite of higher oil prices and natural disasters," President Bush said after touring the Chicago Board of Trade.
The U.S. unemployment rate fell to 4.9 percent from 5 percent in November and, for a second full year in row, more than 2 million new jobs were created. That led Bush economic officials to predict more robust income gains ahead.
"We're having the economy grow, profits are up, compensation levels (are) beginning to rise," Treasury Secretary John Snow told reporters accompanying him on a tour of the New York Stock Exchange.
Rates high enough?
Analysts said the latest jobs data meant odds were rising that the Federal Reserve was near ending the rate-rise cycle it initiated in mid-2004. The U.S. central bank has raised the federal funds rate 13 times to 4.25 percent.
"The report is probably a shade on the weak side and it increases the chance that the Fed is more likely to stop raising rates at 4.75 percent at the middle of the year, rather than going higher," said Cary Leahey, senior managing director at Decision Economics in New York.
Stock prices responded robustly to the latest signs of economic vitality, with the Dow Jones industrial average ahead more than 70 points in mid-afternoon and the high tech-laden Nasdaq composite index up more than 20 points.
But bond prices fell as traders focused on the big November revision and apparently feared it might be enough to keep the Fed's inflation worries alive and so keep rates rising.
The 30-year U.S. Treasury bond price was down 5/32s of a point to yield 4.56 percent in late trading while the 10-year U.S. Treasury note was off 4/32s and yielded 4.38 percent.
Fed officials speaking on Friday were cautious, including Boston Fed President Cathy Minehan, who told a panel session that policy-makers were "still working on an answer" to the question of how long rate rises will continue.
The jobs data made the dollar weaken against other major currencies, with strategists speculating that it was causing some to doubt the dollar would be able to maintain its strength if it appeared that rates might soon stop rising.
There also was a revision in the October jobs totals - to an increase of 25,000 rather than 44,000 -- but for the two months of October and November, the net effect was 71,000 more jobs than the government previously had estimated.
Last year, 168,250 jobs were added each month - a steady if unspectacular pace of growth.
U.S. manufacturers added 18,000 employees in December on top of 8,000 in November and 13,000 in October - the first time since March-May 2004 that manufacturers have increased jobs for three months in a row. But construction jobs declined by 9,000 last month, a reversal from November's 42,000 gain.
Overall, the employment figures imply a relatively strong hiring outlook. But modest gains in employment income - with average hourly earnings up 5 cents in December to $16.34 - may help to heighten expectations the Fed will soon be able to bring its 1-1/2-year rate-rise cycle to an end.
Economist Chris Low of FTN Financial in New York said the December report demonstrated the effectiveness of Fed policy over the past 1-1/2 years.
"They've raised rates enough to take some of the steam out of economic growth and hopefully prolong the expansion," Low said, and the key remaining risk was "if they continue to tighten they may overdo it."