The jobs total was way below the 200,000 new jobs economists had expected and the 182,000 jobs per month average for the year.
The data from December put into sharp focus the influence people leaving the workforce have on the unemployment rate.
"The overall unemployment rate declined to 6.7 percent in December, the lowest since October 2008, but the lingering elevation in the unemployment rate is due to the large number of persons unemployed for more than 27 weeks," said Jason Furman chairman of the White House Council of Economic Advisers.
People unemployed for 26 weeks or less represent 4.1 percent of the labor force, "in line with the average during the 2001-2007 expansion period," Furman said.
Long-term unemployment, however, was 2.5 percent in December compared to 1 percent before the recession, he said.
The U.S. Federal Reserve in December began to taper off on its $85 billion-per-month quantitative easing program, dropping securities purchases to $75 billion each month.
At the time, Fed Chairman Ben Bernanke said that the large numbers of people leaving the workforce was a factor in the unemployment rate.
With the sharp drop-off in jobs, analysts will question whether the Fed's tapering strategy was initiated too soon.
"Unemployment dropped to 6.7 percent because 525,000 additional unemployed adults were discouraged and did not seek a job," said University of Maryland economics Professor Peter Morici.
The Labor Department said the number of unemployed people shrank by 490,000 to 10.4 million in December, making a total of 1.9 million fewer people counted as unemployed during the year.
From January to December, the unemployment rate showed a sizable drop of 1.2 percentage points.
The Labor Department said the civilian labor force participation rate fell 0.2 percentage points to 62.8 percent in December. Over the year, the rate was down 0.8 percentage points, even though the employment-to-total-population ratio was unchanged at 58.6 percent.
The department said 2.4 million people in December were deemed marginally attached to the workforce because they had looked for work in the past 12 months. Within that category, 917,000 are deemed discouraged workers because the statistics separate those who quit looking for work because they believe there is no job available from those who stopped looking for work due to other obligations, such as attending school or family concerns.
The number of those marginally attached to the workforce is "little changed" from a year earlier while the number of those considered discouraged is down by 151,000 from a year ago.