The nation's unemployment rate shot up at the end of the year, reaching 7.2 percent in December — its highest level since early 1993, according to a Labor Department report released Friday.
That puts U.S. job losses at 2.6 million for 2008. Unemployment accelerated after September; the lion's share of the cuts — 1.9 million jobs — came during the last four months of 2008.
The numbers were both better and worse than expected. The Labor Department said payroll declined by 524,000 during December, less than the 550,000 that economists had forecast for the month. But the agency also said it had underestimated payroll losses for October and November by 154,000.
Speaking before reporters, President-elect Obama said Friday that the report underscores the need for rapid passage of an economic stimulus package.
"Clearly, the situation is dire," Obama said. "It is deteriorating and it demands urgent and immediate action."
He added, "This is the time to act."
John Silvia, chief economist for Wachovia Financial, said the numbers show businesses cut swiftly and drastically; he sees that as a sign that the situation isn't likely to get worse this year.
"The bright spot is the negative story," Silvia said. "The downdraft in jobs is so severe in the fourth quarter that we've seen the worst in terms of the single biggest quarter for job losses and decline in GDP."
Silvia said he still anticipates unemployment could rise to 8.5 percent or 9 percent during this year.
Silva said the economy is undergoing a "fundamental restructuring." As in the early 1980s and during post-World War II years, the economy is shifting the way it does business and the way consumers spend money, he said. Most critically, this time around, the economy is trying to recover from four decades of expansion in consumer credit. The mortgage crisis has forced a kind of reckoning with the loose credit rules that had been driving the U.S. economy, he said.
Many of the lost jobs came from the manufacturing and construction sectors. Even retail posted a decline at the end of the year — and the sector wasn't helped by sluggish holiday sales and weak consumer spending. The only sectors that didn't show declines were government, education and health services.
Democratic Rep. Barney Frank of Massachusetts, who heads the House Financial Services Committee, called the jobs report "disastrous." He said in a statement that reversing the situation would require a large economic recovery plan, as well as the release of the second half of funds from the Troubled Asset Relief Program, initially passed to try to shore up the financial sector. Some $350 billion in TARP funds have yet to be tapped.
Economists expect the economy to show improvement around the middle of the year — particularly if the incoming Obama administration manages swift passage of an economic stimulus package. Obama has urged investment in infrastructure and education, among other things.
"The bad news is the fiscal stimulus takes time," said Diane Swonk, chief economist for Mesirow Financial in Chicago. "Infrastructure has a big payoff on it, but it takes a long time to get projects up and running."
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