By Lucia Mutikani
WASHINGTON (Reuters) - The unemployment rate surged to its highest level in nearly 16 years in December as a deepening year-long recession forced companies to slash payrolls by more than half a million jobs.
An accelerating pace of job losses toward the end of the year pointed to a bleak start for 2009 and increases chances the economic downturn could become the longest since the 1930s.
The Labor Department said on Friday the jobless rate jumped to 7.2 percent, the highest level since January 1993, from 6.8 percent in November. Economists had expected a smaller rise to 7 percent.
The surge reflected another month of deep job losses. Employers cut nonfarm payrolls by 524,000 in December, a bit less than analysts had predicted, but jobs losses for October and November were much greater than estimated earlier.
For the year as a whole, the economy shed 2.6 million jobs, the largest decline since a 2.75 million drop in 1945.
"This is a very dismal report. This paints a much worse picture in 2008 than we had thought," said Lindsey Piegza, market analyst at FTN Financial in New York. "This is one of the most significant downward quarters for jobs in post World War history."
U.S. stocks opened up slightly on relief the drop in December payrolls was not as dire as some had feared, but later dropped as investors began to digest the report.
The sharp losses in jobs this year, which has gathered pace in the last few months, was likely to underscore the sense of urgency President-elect Barack Obama and lawmakers feel about enacting a huge economic stimulus plan.
The economy slipped into recession in December 2007 and the 12-month downward spiral is already the longest since the early 198Os. If it last more than 16 months, it will be the lengthiest recession since the Great Depression.
"The job situation is ugly and is going to get uglier. There's no reason to expect hiring anytime in the next three to six months. We are not going to see any hiring until the government steps in and acts. Talk doesn't work," said Richard Yamarone, chief economist at Argus Research in New York.
The collapse of the U.S. housing market and the resulting financial crisis have triggered the worst financial environment since the Great Depression, and businesses and consumers have both retrenched.
The department said 584,000 jobs were lost in November, compared to a previously reported loss of 533,000, while October's losses were revised to 423,000 from 320,000.
With those revisions, the total reduction in U.S. nonfarm payrolls in the four months through December was 1.9 million.
Adding to the report's weak tone, the length of the average workweek shrank, suggesting more job cuts could be in store.
PULLING OUT THE STOPS
U.S. officials have already taken aggressive action to try to quell a financial crisis that long ago spread worldwide, and Obama is pushing for a package of government spending and tax cuts that could total $775 billion or more.
The U.S. Federal Reserve has already cut benchmark interest rates to virtually zero and has pledged to ensure financial markets are flush with cash in the hope that market-set borrowing costs recede and spur economic activity.
In December, service-providing businesses shed 273,000 jobs, with retail payrolls declining by a sharp 67,000.
The construction and manufacturing industries continued their blood-letting. Construction employment dropped by 101,000 and factories cut their payrolls by 149,000.
"It is a grim take on the U.S. economy as 2008 came to a close and if anything is pointing to continuing weakness in the job market in the opening months of 2009," said William Sullivan, chief economist at JVB Financial Group in Boca Raton, Florida.
(Additional reporting by Richard Leong and Al Yoon in New York, Editing by Chizu Nomiyama)