Image: Steve Pruitt fills out an employment application
Alex Brandon  /  AP
Steve Pruitt, from Belle Chasse, La., fills out an employment application during a Dollar General job fair in Metairie, La. Jobless rate rises to 7.2 percent in December; payrolls drop by 524,000.
updated 1/9/2009 3:55:01 PM ET 2009-01-09T20:55:01

The nation's unemployment rate bolted to 7.2 percent in December, the highest level in 16 years, as nervous employers slashed 524,000 jobs, capping one of the worst years in modern history for American workers.

The Labor Department's report, released Friday, underscored the grim toll the deepening recession is having on workers and companies. And it highlights the difficulty President-elect Barack Obama faces in resuscitating the flat-lined economy. This year has gotten off to a rough start with a flurry of big corporate layoffs, pointing to another year of hefty job reductions.

"The situation is dire," Obama said during a news conference Friday to discuss additional appointments for his administration.

"Today's jobs report only underscores the need to move with a sense of urgency and common purpose," said Obama, directing his message to Congress. Congressional leaders have said they will finish action on Obama's economic recovery plan by mid-February, though outlines of the plan are already drawing some criticism, even among the president-elect's fellow Democrats.

Not only are employers slashing jobs; they also are cutting workers' hours and forcing some into part-time work. The average work week in December fell to 33.3 hours, the lowest level on records dating to 1964 — and a sign of more job reductions in the months ahead, economists said.

"There is no end in sight in terms of layoffs," said economist Ken Mayland, president of ClearView Economics. "January could be worse because some companies put layoffs on hold because of holiday sensitivities."

For all of 2008, the economy lost a net total of 2.6 million jobs. It was the first time payrolls had fallen for a full year since 2002 and was the most since 1945, when nearly 2.8 million jobs were lost. Though the U.S. labor force has more than tripled since then, losses of this magnitude are still being painfully felt.

With employers throttling back hiring, the nation's jobless rate averaged 5.8 percent last year. That was up sharply from 4.6 percent in 2007 and was the highest since 2003.

All told, 11.1 million people were unemployed in December. In addition, 8 million people were working part time — a category that includes those who would like to work full time but whose hours were cut back or those who were unable to find full-time work. That was up sharply from 7.3 million in November.

While economists were forecasting even more payroll reductions in December — around 550,000 — job losses in both October and November turned out to be deeper than previously estimated. Revised figures showed employers slashed 584,000 positions in November and 423,000 in October.

The unemployment rate, meanwhile, rose from 6.8 percent in November, to 7.2 percent last month, the highest since January 1993. Economists were expecting the jobless rate to rise to 7 percent.

Meanwhile, the Commerce Department reported Friday that wholesale inventories dropped 0.6 percent in November, the third straight month of business cutbacks, while sales were down a record 7.1 percent.

Job loss

es were widespread in December. Construction companies slashed 101,000, and manufacturers axed a a whopping 149,000 jobs. Professional and business services got rid of 113,000 jobs. Retailers eliminated nearly 67,000 jobs, and leisure and hospitality reduced employment by 22,000. That more than swamped gains in education and health care, and the government.

Employers are chopping costs as they try to cope with dwindling appetite from customers in the U.S. as well as in other countries, which are struggling with their own economic problems.

Workers with jobs saw modest wage gains. Average hourly earnings rose to $18.36 in December, up 0.3 percent from the previous month. Economists were expecting a 0.2 percent increase.

Over the year, wages have risen 3.7 percent, though high prices for energy and food earlier this year made people feel that their paychecks weren't stretching that far.

The U.S. recession, which just entered its second year, is already the longest in a quarter-century and is likely to stretch well into this year. The fact that the country is battling a housing collapse, a lockup in lending and the worst financial crisis since the 1930s make the current downturn especially dangerous.

White House press secretary Dana Perino said the employment damage reflects the "sharp slowdown" in economic activity caused by problems in the housing and credit markets.

"Americans can have faith that the economy can return to growth and job creation this year," she said.

Corporate layoffs continue to pile up. Airplane maker Boeing Co. on Friday said it plans to cut about 4,500 jobs this year due to the global economic slowdown, and G&K Services Inc., which provides uniforms and facility services, said it is eliminating 460 jobs as it aims to trim costs amid weak demand. Late Thursday, Intermec Inc., which makes electronic devices for tracking inventory, said it plans to cut 150 jobs, or 7 percent of its work force.

Earlier this week, drugstore operator Walgreen Co., managed care provider Cigna Corp., aluminum producer Alcoa Inc., data-storage company EMC Corp. and computer products maker Logitech International all announced major layoffs to cope with the recession.

All the problems have forced consumers and companies alike to retrench, feeding into a vicious cycle that Washington policymakers are finding difficult to break.

Obama has said a bold approach is needed to bust through this cycle and revive economy.

Major Market Indices

"I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible," he said Thursday.

"If nothing is done, this recession could linger," Obama warned. "The unemployment rate could reach double digits."

Obama, who takes over Jan. 20, is promoting a huge package of tax cuts and government spending that could total $775 billion over two years. With add-ons by lawmakers, the package could swell to $850 billion, his advisers say.

Even with a new government stimulus and the Federal Reserve's decision to ratchet down a key interest rate to an all-time low, the unemployment rate is expected to keep rising. Some economists think it could hit 9 or 10 percent at the end of this year.

More on unemployment economy

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