The U.S. economy had a net gain of 200,000 jobs in December, while the unemployment rate dropped to the lowest level since early 2009.

Friday's report from the Labor Department says the jobless rate fell two-tenths of one percent to hit 8.5 percent.

All of the job gains were in the private sector, particularly transportation, retail, manufacturing, and health care. Employment continued falling in state and local governments which cut another 12,000 jobs.

This is the sixth month in a row that the economy has gained at least 100,000 jobs, but those gains have not yet made up for the eight million jobs lost during the recession. High unemployment has made the economy a key issue in this year's presidential election campaign.

U.S. President Barack Obama welcomed the improved job picture, saying 2011 saw more employment gains than any year since 2005. But he also said millions of American are still out of work, and many families and small businesses “are hurting.” In a Washington speech Friday, Mr. Obama said “we still have work to do.”