December jobs report article updated with analyst commentary, additional information.WASHINGTON ( TheStreet) -- The economy added fewer jobs than expected in December, even as the unemployment rate dropped more than expected, raising doubts on the speed of the recovery in the labor market. The Labor Department said in its Employment Situation Report early Friday that nonfarm payrolls rose by 103,000 in December, up from an upwardly revised 71,000 in the prior month. Economists expected payrolls to rise by 160,000 jobs, according to median consensus estimates available on Bloomberg. Estimates ranged from as low as 98,000 to as high as 225,000. Companies accelerated hiring in December, with the private sector payrolls increasing by 113,000 after growing more modestly in November. Consensus called for a private payroll addition of 180,000. The unemployment rate moved sharply lower to 9.4%, surprising the markets. That is the the lowest level since May 2009. Economists were expecting the rate to dip marginally to 9.7% from 9.8% in the previous month. The number of unemployed dropping by 556,000 to 14.5 million in December. There was also a withdrawal in the labor participation rate, which edged down to 64.3%.
"Overall it fell short of expectations but when looked at from a two-to-three month perspective as opposed to a one-month report, it is generally positive," said O'Keefe, citing the upward revisions to private sector growth in November. "The month to month was less robust but not severely so. It does confirm that the labor market is improving, but at a sub-par rate." On the unemployment rate, O'Keefe expressed surprise at the withdrawal in the labor participation rate. There were 1.3 million discouraged workers in December, slightly higher than in November. "Households are yet to accept that the economy is adding job opportunities. The JOLTS (job openings and labor turnover data) tells us differently, but it is yet to sink into their consciousness." O'Keefe says a more relevant metric might be the employment-to-population ratio, or EPR, which measures the number of employed persons as a percentage of population over the age of 16, and has less moving parts than the unemployment rate. The EPR ratio ticked up a tenth of a point at 58.3% in December. That level was at 62.7% prior to the recession and has been essentially unchanged since the recession officially ended in June 2009, further evidence of just how much the job market has lagged the economic recovery in the past 18 months. There were two other positive takeaways from the report. One was that the contribution of temporary hires to overall payroll growth reduced to 14% from 25% in the prior eleven months. That meant companies were more confident now to make permanent hires. "A drop in the temporary hiring rate would mean companies are ready to move from dating to marriage," said O'Keefe ahead of the report. Also the number of underemployed dropped slightly, suggesting that people were moving from part-time to full-time jobs. The average workweek for all employees on private nonfarm payrolls held at 34.3 hours in December. The average hourly earnings for all employees on private nonfarm payrolls increased by 3 cents, or 0.1 percent, to $22.78. The SPDR Dow Jones Industrial Average ETF ( DIA) and the SPDR S&P 500 ( SPY) were down 0.1% in premarket trading while the PowerShares QQQ ( QQQQ) was up 0.2%. -- Written by Shanthi Bharatwaj in New York >To contact the writer of this article, click here: Shanthi Bharatwaj. >To follow the writer on Twitter, go to http://twitter.com/shavenk. >To submit a news tip, send an email to: email@example.com.