Nonfarm payrolls rose in December, topping Wall Street expectations while November's surprising gain was also revised higher. However, wages declined.
"Obviously this is a very positive report for the economy. But the one really puzzling thing is the lack of any wage growth and in fact, wage decline, in December," said David Kelly, chief global strategist for JPMorgan Funds in New York.
"We will see wage growth pick up early this year and that will keep the Fed on track to start raising rates in June. While they are on their track, they are still way behind where they should be, given the state of the economy."
Data separately showed wholesale inventories rose in November, also topping expectations and suggesting restocking may boost fourth-quarter growth.
The Dow Jones industrial average fell 210.93 points, or 1.18 per cent, to 17,696.94.
The S&P 500 lost 22.93 points, or 1.11 per cent, to 2,039.21.
The Nasdaq Composite dropped 52.68 points, or 1.11 per cent, to 4,683.51.
The S&P 500 had added 3 per cent over the last two sessions, retracing a good portion of a 4.2 per cent loss in the previous five trading days, on expectations the US economy will continue to accelerate and hopes the European Central Bank will take more aggressive stimulus action in the coming weeks.
Despite the two-day rally, the Dow, S&P 500 and Nasdaq were on track to end the week lower.
AbbVie forecast 2015 earnings largely above analysts' average estimate after the close Thursday, betting on its recently approved hepatitis C drug and growth in its auto-immune disease treatment, Humira. However, shares dropped 3.2 per cent to $65.49 as health insurer Anthem said it reached a deal under which Gilead Sciences hepatitis C drug Harvoni will be the primary treatment for patients infected with the virus.
Five Below slumped 17.9 per cent to $35.81 after the discount retailer forecast fourth-quarter sales and earnings below Wall Street forecasts.
Bed, Bath & Beyond dropped 7.8 per cent to $73.24 as the worst-performing S&P 500 component after the retailer reported third-quarter results but forecast fourth-quarter earnings at the low end of expectations.
Declining issues outnumbered advancing ones on the NYSE by 2,206 to 676, for a 3.26-to-1 ratio; on the Nasdaq, 1,832 issues fell and 707 advanced for a 2.59-to-1 ratio.
The benchmark S&P 500 index was posting 33 new 52-week highs and 6 new lows; the Nasdaq Composite was recording 50 new highs and 27 new lows.
Copyright @ Thomson Reuters 2015