U.S. jobless rate at 16-year high as payrolls plunge

By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. unemployment rate surged to the highest in nearly 16 years last month as a deepening year-long recession forced companies to axe more than half a million jobs, government data showed on Friday.

The U.S. economy lost an astonishing 1.9 million jobs in the past four months alone, an acceleration in layoffs towards the end of a year that brought the biggest drop in employment in more than a half century.

In all of 2008, 2.6 million people lost their jobs, the largest slump in employment 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 Labour 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, job loss totals for October and November were revised upward and came in much higher than previously estimated.

U.S. stocks dropped, with the Dow Jones industrial average closing down 1.64 percent as investors fretted corporate profits would suffer with the economy deteriorating sharply.