By Lucia Mutikani
WASHINGTON (Reuters) - The U.S. unemployment rate surged to the highest level in nearly 16 years last month as a deepening year-long recession forced companies to cut payrolls by more than half a million jobs, data showed on Friday.
The economy lost an astonishing 1.9 million jobs in the past four months alone, an acceleration in layoffs toward the end of a year that brought the biggest drop in employment in more than a half century.
For all of 2008, the economy shed 2.6 million jobs, the largest decline since a 2.75 million drop in 1945.
The December data pointed to a bleak start for 2009 and increased chances the economic downturn could become the longest since the 1930s.
"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 (Two) history."
The Labor Department said the unemployment rate jumped to 7.2 percent last month, the highest since January 1993, from 6.8 percent in November. The rise was driven by massive layoffs in all major sectors except government, education and health.
In all, employers cut nonfarm payrolls by 524,000 last month. While that was a bit less than analysts had predicted, jobs losses for October and November were much greater than previously estimated.
U.S. stocks dropped as investors fretted the deteriorating labor market and economic environment would weigh heavily on corporate profits. Lower-risk government bonds drew a safe-haven bid from the data.
The darkening jobs market picture also underscored the sense of urgency U.S. President-elect Barack Obama and lawmakers feel about enacting a huge economic stimulus plan.
"Clearly the situation is dire. It is deteriorating and it demands urgent and immediate action," Obama told a news conference.
RECESSION DEEPENS
The U.S. economy slipped into recession in December 2007 and the 12-month downward spiral is already the longest since the early 198Os. If it lasts more than 16 months, it will be the longest 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 crisis since the 1930s, and businesses and consumers have both retrenched.
December marked the second straight month of job losses in excess of half a million. The department said 584,000 jobs were lost in November, the biggest decline since December 1974, when payrolls dropped 602,000.
The November total was previously reported as a loss of 533,000. October's losses were revised upward to 423,000 from 320,000, meaning more than an additional 100,000 jobs were lost in the two months.
Adding to the report's weak tone, the length of the average workweek fell to 33.3 hours in December, the lowest on record since the series started in 1964, 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.
The Libor rate, the world's biggest benchmark, off which short term loans are referenced, is on a downward trend. That will ultimately help lower corporate borrowing costs, said Tony Crescenzi, chief bond market strategist, Miller, Tabak & Co. in New York.
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.
Further highlighting the grim economic picture, a separate government report showed U.S. wholesale inventories fell 0.6 percent in November after declining 1.2 percent in October.
November wholesale sales plunged a record 7.1 percent after falling 4.5 percent in October.
(Additional reporting by Melissa Bland in Washington, Richard Leong, John Parry and Al Yoon in New York, Editing by Dan Grebler)
