The U.S. economy added 216,000 jobs in December and the unemployment rate held steady at 3.7% as the labor market unexpectedly picked up despite high interest rates.

Here are some key takeaways from the final employment report of the year.

Job growth was unexpectedly strong last month...But

The payroll gains easily topped the 175,000 forecast by economists in a Bloomberg survey. But the strong showing was offset by downward revisions totaling 70,000 to job gains in October and November.

The bottom line: mostly a wash, economists said.

Job growth slowed in 2023

Employers added 2.7 million jobs, or 225,000 a month, last year. That was down from 4.8 million, or 399,000 a month, in 2022 as a post-COVID surge in the economy faded. The pullback is consistent with the Federal Reserve’s goal of paring back job and wage growth enough to tame inflation without sparking a recession – a feat known as a “soft landing.”

The Fed has been sharply raising interest rates to cool the economy and lower inflation.

In an interview, Acting Labor Secretary Julie Su said the drop-off in hiring from unsustainable levels is a good thing and a sign of "strong, steady, stable job growth."

"It's the coveted soft landing," she said.

Fewer industries are driving job gains

Industries that are less sensitive to rate increases and the economy’s ups and downs -- such as government, health care, and social assistance – have accounted for the lion’s share of U.S. job growth lately. Others, such as trucking and professional services, have been flagging.

The trend signals a slowing labor market despite the strong December, says economist Ben Ayers of Nationwide.

Last month, federal, state and local governments led the payroll increases with 52,000. Health care added 38,000 and social assistance, 21,000.

Wage growth picked up

Average hourly pay rose 15 cents to $34.27, pushing up the yearly increase to 4.1% from 4%. That may be mildly discouraging for the Fed, which is trying to slow pay increases that are contributing to inflation. Fed officials would like to see wage growth ease to 3.5% to align with their 2% overall inflation goal.

Labor force participation fell

The share of adults working or looking fell to 62.5% from 62.8%, the biggest decline in nearly three years. A smaller supply of workers could push up wages and make the Fed’s job of wrestling down inflation more challenging.

The participation rate had climbed to the highest level since the pre-pandemic, largely on a surge in immigration and the return to the labor force of women in their prime working years.