U.S. employers hired more workers than expected in November and the jobless rate fell to a five-year low of 7.0 percent, which could fan speculation the Federal Reserve could start reducing its bond purchases this month.

Nonfarm payrolls increased by 203,000 new jobs last month, the Labor Department said on Friday.

The unemployment rate dropped three tenths of a percentage point to its lowest level since November 2008 as some federal workers who were counted as jobless in October returned to work after a 16-day partial shutdown of the government.

Economists polled by Reuters had forecast payrolls rising only 180,000 last month and the unemployment rate falling to 7.2 percent from 7.3 percent.

Job gains for September and October were revised to show 8,000 more jobs created than previously reported, lending more strength to the report. Other details were also upbeat, with employment gains across the board, average hourly earnings rising and the workweek lengthening.

In addition, the jobless rate fell even as the participation rate – the share of working-age Americans who either have a job or are looking for one – bounced back from a 35-1/2-year low touched in October.

The closely watched employment report was released little more than a week before the Fed’s December 17-18 policy-setting meeting.

The stronger-than-expected reading on job growth in November could stir speculation the central bank might reduce its current pace of bond purchases this month, but most economists feel the Fed will want further signs of economic progress before acting.

"The U.S. labor market is still far from healed, but it certainly is moving in the right direction. This number puts a December taper on the table, but it isn’t a certainty," said Eric Stein, portfolio manager at Eaton Vance Investment Managers in Boston.

U.S. stock index futures added to gains before pulling back, while U.S. benchmark Treasury yields jumped to a three-month high. The dollar rose against the yen and euro.

Minutes from the U.S. central bank’s last meeting in October showed officials were preparing to scale back their monthly $85 billion bond-buying campaign in coming months as long as the economy continues to improve.

Mixed Economic Data

Economic data so far for the fourth quarter have been mixed, with labor market and consumer spending indicators firming. However, the housing market and business spending have slowed.

Economists also believe the central bank will probably not want to pull the trigger before lawmakers on Capitol Hill strike a deal to fund the government. Congressional aides have said budget negotiators were down to the final details as they appeared to close in on sealing a two-year deal.

While a few economists look for the Fed to scale back its purchases in December or January, most expect it will hold off until March, and some believe it may wait until June, given that inflation remains low.

In a separate report, the Commerce Department said a price index for consumer spending was flat in October, having risen by 0.1 percent for three straight months. Over the past 12 months, prices rose 0.7 percent, the smallest gain since October 2009.

Excluding food and energy, the price index for consumer spending rose 0.1 percent, rising by the same margin for a fourth straight month. Core prices were up 1.1 percent from a year ago. Both inflation measures continue to trend below the Fed’s 2 percent target.

Job gains in November were broad-based, with government payrolls also rising as hiring by state and local governments offset a decline in federal government employment.

Manufacturing payrolls increased 27,000, rising for a fourth straight month. Construction employment advanced 17,000, adding to October’s gains even as the housing recovery has slowed.

Retail employment slowed, adding 22,300 last month compared to 45,800 in October. A late Thanksgiving holiday could have resulted in some of the seasonal hiring not being captured in November’s report.

Leisure and hospitality, as well as professional and business services payrolls showed gains, but at a slower pace than in October.

Other details of the report showed average hourly earnings rose by four cents. The length of the workweek edged up to an average of 34.5 hours from 34.4 hours.