The unemployment rate fell from 5.8% to 5.6%, lowest since June 2008.
Economists expected payroll gains of 240,000, according to their median forecasts.
Also encouraging is that job gains for October and November were revised up by a total 50,000. October's count was revised to 261,000 from 243,000 and November's to 353,000 from 321,000.
Businesses added 240,000 jobs on broad-based gains in professional and business services, construction and restaurants, among other sectors. Federal, state and local governments added 12,000.
Employers added an average 246,000 jobs a month in 2014, making it the best year for job growth since 1999.
"This is a self-sustaining job expansion," says Patrick O'Keefe, former deputy assistant secretary for the Department of Labor, now director of economics at J.H. Cohn accounting and consulting. He expects average monthly payroll gains of 240,000 to 250,000 this year.
Wages, however, fell after rising sharply in November. Average hourly earnings dropped 5 cents to $24.57 and are up just 1.6% over the past 12 months, below the meager 2% annual pace that has prevailed throughout the recovery. The failure of wage gains to accelerate with a tumbling unemployment rate has been the biggest missing piece of the labor market's strong showing this year.
Also,the jobless rate declined sharply largely because 273,000 Americans stopped working or looking for work. That pushed down the share of Americans in the labor force to 62.7%, matching the historic low reached in September. Although many Baby Boomers are retiring, economists have been puzzled that a surging labor market hasn't drawn more discouraged workers back into the job hunt.
A more positive sign is that a broader measure of unemployment that includes part-time workers who prefer full-time jobs -- as well as discouraged workers and the unemployed -- fell to 11.2% from 11.4%.
Professional and business services led December job gains, with 52,000. Construction added 48,000; healthcare, 44,000; and leisure and hospitality, 36,000.
Other barometers of labor market health have been mixed recently. Payroll processor ADP reported better-than-expected 241,000 private-sector job additions last month. And initial jobless claims – a good gauge of layoffs -- generally have remained low recently.
But a measure of employment in a survey of the service sector – which makes up 80% of payrolls -- declined last month.
The broader economy, meanwhile, has accelerated recently, with gross domestic product rising 4.6% in the second quarter and 5% in the third quarter -- its best six-month stretch in 11 years. Tumbling gasoline prices have boosted consumer spending but business investment has been weak in recent months.
