US employment plunged by 524,000 in December - confirming the American labour market is in its worst shape since the end of the Second World War and fuelling fears about the depth of the recession in developed economies.

The US Labour Department said the unemployment rate in the world's largest economy jumped from 6.8% in November to 7.2% last month - the highest since January 1993. It also declared the falls in employment in November and October had been significantly greater than it has estimated previously.

The US economy has lost more than 1.9 million jobs in the past four months alone, adding to worries that the recession will be the longest the country has seen since the Great Depression of the 1930s.

For 2008 as a whole, the US economy shed 2.6 million jobs. This is the largest decline since a drop of 2.75 million in 1945.

US President-elect Barack Obama said yesterday that the payroll numbers offered a "stark reminder" of the need to move quickly to pass a bold US economic stimulus package.

Obama told a news conference: "Clearly the situation is dire. It is deteriorating and it demands urgent and immediate action. This morning, we received a stark reminder about how urgently action is needed."

He added that he was making good progress in talks with Congress on the stimulus package, which is expected to total $800bn or more.

The US Labour Department yesterday revised the tumble in US non-farm payrolls during November to 584,000 from 533,000 and now estimates that they fell in October by 423,000 rather than 320,000.

The 524,000 tumble in employment in December, although in line with a consensus forecast of about 525,000 in print, was not as bad as the drop of up to 600,000 which Wall Street had begun to fear after dire jobs figures published by payrolls firm ADP earlier this week.

However, the revisions to the previous two months' figures were big and New York's Dow Jones Industrial Average fell into negative territory.

Paul Ashworth, senior US economist at consultancy Capital Economics, said: "In the end, the decline in non-farm payrolls last month wasn't quite as bad as some in the markets had begun to fear. However, it was bad enough and, arguably more importantly, revisions to the declines in earlier months mean that the three-month average decline in payrolls still reached a 50-year record of more than 500,000.

"The bottom line is that conditions in the labour market in the fourth quarter were the weakest since the end of the Second World War."

He added: "The 524,000 decline in non-farm payrolls in December underlines the severity of this recession. The declines were widespread, with manufacturing, construction, retail and temporary employment all badly hit."

Ashworth is forecasting that the US unemployment rate will peak at close to 9.5% in the second half of 2010.

He noted, as well as the severe contraction in employment, working hours were also being cut back sharply.

"Average hours worked dropped to a record low of 33.3 last month (from 33.5)," said Ashworth. "Over the past year, hours worked have fallen by 1.5%, which is the biggest decline since late 2001."

He declared he would not be surprised to see monthly declines in non-farm payrolls "begin to ease off gradually over the first half of this year".

Noting new claims for unemployment benefit had already begun to moderate, Ashworth added: "It is not-able that, historically, periods of severe employment declines have been quite brief.

"However, this is also a matter of perception. If the monthly declines now fall to less than 300,000 we would call that progress, whereas only two months ago we would have described a drop of that magnitude as a catastrophe."

The British Chambers of Commerce is now predicting that UK unemployment will, on the government's preferred International Labour Organisation measure, go through the three-million mark and touch 3.1 million, or about 10% of the workforce, over the next two years. It had in November predicted that ILO unemployment, which stood at 1.864 million in the August to October period, would peak at 2.95 million.

The peak of 3.1 million which is now forecast by the BCC is marginally higher in absolute terms than that of about three million in the last recession in the early 1990s. However, the projected ILO unemployment rate of 10% this time is less than the 10.7% peak in the early 1990s' recession because the workforce was more than two million lower at that time.

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