(Adds details, Fed rate poll, updates markets to close)
* Nonfarm payrolls increase 252,000 in December
* Jobless rate falls to 6-1/2-year low as labor force shrinks
* Average hourly earnings fall five cents; workweek steady
* Mixed employment report leaves possible June rate hike on the table
By Lucia Mutikani
WASHINGTON, Jan 9 (Reuters) - U.S. job growth increased briskly in December, but wages posted their biggest decline in at least eight years in a sign the tightening labor market has yet to give much of a boost to workers.
Nonfarm payrolls increased by 252,000 last month after an upwardly revised jump of 353,000 in November, the Labor Department said on Friday. The jobless rate fell 0.2 percentage point to a 6-1/2-year low of 5.6 percent, but that was mainly because people left the labor force.
The drop in labor participation and a surprise five-cent, or 0.2 percent, decrease in average hourly earnings, which nearly erased November’s gains, took some shine off the otherwise upbeat report.
December marked the 11th straight month of payroll increases above 200,000, the longest stretch since 1994. For last year as a whole, the economy generated 2.95 million new jobs, the strongest annual showing since 1999.
The softness in earnings, however, is puzzling. Some economists wondered whether last month’s broad-based fall, which was led by a record 1.2 percent plunge in the retail trade sector, was a seasonal fluke that would be revised away.
“There is no obvious fundamental economic factor that would contribute to today’s number,” said Michael Feroli, an economist at JPMorgan in New York. “We are disposed to view this decline as a one-off.”
The drop in earnings was the biggest on record dating back to 2006. A separate, narrower gauge posted its largest percentage decline since 1983.
The fall exacerbated a soft trend that has been in place since the 2007-2009 recession. Over the past year, earnings rose only 1.7 percent, the smallest 12-month gain since October 2012.
While December’s earnings decline bolstered the case for the Federal Reserve to take a go-slow approach to raising interest rates, it did not remove a possible June hike from the table, economists said.
A Reuters survey of big banks showed many economists are sticking to their June rate call.
But financial markets were less convinced. The dollar fell against a basket of currencies and prices for U.S. Treasury debt rose as traders pushed back their expectations for when rates would rise. U.S. stocks lost nearly 1 percent after a two-day rally.
The Fed has kept overnight borrowing costs near zero since December 2008.
“We have not changed our Fed call for a June tightening, but it just puts the risks later as opposed to sooner,” said Dana Saporta, a senior economist at Credit Suisse in New York.
All sectors of the economy had employment gains last month and, in another sign of strength, 50,000 more jobs were created in October and November than previously thought.
Overall, the data suggested the economy was positioned for strong growth this year despite troubling weakness in some economies overseas.
Construction employment rose by 48,000, the largest gain since January, while manufacturers added 17,000 workers. Government employment increased by 12,000 positions.
In addition, the length of the average work week held at a 6-1/2-year high of 34.6 hours, suggesting further job gains are in store.
The softness in wages is striking given the tightening jobs market. The unemployment rate dropped by more than a percentage point last year, and is now near territory Fed officials consider commensurate with full employment.
A San Francisco Federal Reserve Bank research paper published this week suggested wage growth was tepid because many firms were unable to reduce wages during the recession and are holding the line on increases in return.
Even so, economists expect to see a spark soon as the labor market continues to tighten. About 21 states are raising their minimum wage this year.
“The wage story should look much better at the end of 2015,” said Dan Greenhaus, chief strategist at BTIG in New York.
Most of the measures tracked by Fed Chair Janet Yellen to gauge the amount of slack in the labor market continued to point to tightening conditions in December.
A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell two-tenths of a percentage point, to 11.2 percent, the lowest level since September 2008.
The ranks of the long-term unemployed continued to shrink in December. Almost two-thirds of the decline in the level of unemployment last year was among the long-term unemployed.
But the labor force participation rate, the percentage of the working age population who either have a job or are looking for one, dropped back to the 36-year low of 62.7 percent reached in September. (Reporting by Lucia Mutikani; Editing by Andrea Ricci, Nick Zieminski, Paul Simao and Dan Grebler)