US unemployment fell for the fourth straight month in December and jobs creation picked up, but economists warned that Europe's debt crisis and a rise in oil prices could yet scuttle the recovery.
In its keenly awaited monthly jobs report Friday, the Labor Department said the unemployment rate slipped to 8.5 percent as 200,000 jobs were added last month.
The jobless rate was the lowest since February 2009, the month after President Barack Obama took office amid the worst US recession in decades.
As recently as August the rate stood at 9.1 percent, and economists cheered the new numbers as evidence that economic growth, feeble throughout much of 2011, was gaining traction.
"This is the best possible type of report, as job creation in December was strong and the unemployment rate fell," said Jason Schenker at Prestige Economics.
"This report provides further justification for continued modest optimism about the US economy in 2012," he said.
Obama, whose political future could hang on how bad unemployment is by the time of November's presidential election, welcomed the news.
"The economy is moving in the right direction. We are creating jobs," he said, while urging Congress to keep supporting stimulus programs for the economy.
The Democratic president has backed government investment to generate more jobs, while opposition Republicans have resisted, arguing that government spending has been holding back private hiring.
A total of 1.6 million jobs were added over the past 12 months, which Obama noted was more than in any year since 2005 but that "a lot" of people were still suffering.
"After losing eight million jobs in the recession, obviously we have a lot more work to do."
The report was stronger than generally expected. Analysts on average had forecast a rise in the jobless rate and weaker job gains of 150,000.
"Unfortunately, we need more like 300,000 jobs (a month) to get the unemployment rate coming down consistently and rapidly, and that is not likely to happen this year," said Joel Naroff of Naroff Economic Advisors.
The number of unemployed people continued to trend down in December, to 13.1 million, after topping 14 million in mid-2011. Hourly wages and hours worked rose.
But the data showed the lingering deep strains in the labor market since the recession ended in June 2009.
The number counted as long-term unemployed -- persons without a job for 27 weeks or more -- barely budged at 5.6 million, or 42.5 percent of the unemployed.
Other indicators were flat, including the labor force participation rate, unchanged at 64 percent.
The private sector again delivered all of the job gains, adding 212,000 in December.
Governments at all levels shed a net 12,000 jobs, a slower pace of layoffs amid strained budgets.
The job gains were broad-based, with jobs added in transportation and warehousing, retail trade, manufacturing, health care, and mining.
Analysts cautioned that big risks remained in front of the long, slow jobs recovery, including tensions with Iran over its nuclear problem, which could lead to higher oil prices, and Europe's public debt crisis that has pushed the 17-nation eurozone to the brink of recession. Both could hamper US growth.
IHS Global Insight's Nigel Gault said that while the report was "encouraging," the economy still faces "domestic headwinds" from household and government debt.
"But the major threat remains external from slowing growth in the rest of the world and from the eurozone's financial crisis," he added.
The head of the International Monetary Fund, Christine Lagarde, warned Friday that the eurozone crisis was taking a toll and the IMF would probably revise downward its October world economic forecasts in an update later this month.
"We should clearly prepare for a 2012 that will not be a walk in the park, that will not be an easy journey, but will be one of effort and focus on a combination of issues -- the first one, the European crisis and its resolution," she said during a visit to South Africa.