Jan. 10 (Bloomberg) -- The hemorrhaging of the U.S. job market looks likely to persist into the new year after employers slashed payrolls in 2008 by the most since 1945, increasing pressure on President-elect Barack Obama to stanch the decline.

The nation lost 524,000 jobs in December, bringing the total drop for last year to 2.589 million, just shy of the 2.75 million decline at the end of World War II, the Labor Department reported yesterday in Washington. The unemployment rate climbed to 7.2 percent, the highest level in almost 16 years.

“The labor market has deteriorated sharply, and it’s telling us the economy is exceptionally weak right now,’ said Jim O’Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut. “The first quarter will be pretty rough again, with big declines in payrolls and higher unemployment.”

Obama, who takes office on Jan. 20, urged lawmakers on Jan. 8 to pass his economic recovery program “in the next few weeks,” warning that “if nothing is done, this recession could linger for years.” His plan, which has met with mixed reception in Congress, may exceed $775 billion and aims to save or create 3 million jobs.

Job losses last month were widespread, with manufacturers, builders, retailers and temporary-help agencies axing positions. Companies also cut back employees’ working hours, which economists said could be a harbinger of more job declines. The average work week shrank to a record-low 33.3 hours.

Wal-Mart, Macy’s

Manufacturers including Alcoa Inc. have said they will cut output and staff, and retailers from Wal-Mart Stores Inc. to Macy’s Inc. slashed profit forecasts after the worst holiday- shopping season in almost four decades.

U.S. stocks fell yesterday, extending the market’s worst weekly loss since November, and Treasury securities gained, on concern the recession was worsening. The Standard & Poor’s 500 Stock Index fell 2.1 percent to close at 890.35. Benchmark 10- year note yields fell to 2.39 percent in New York.

Payrolls were forecast to drop 525,000 last month, after a previously reported 533,000 decline in November, according to the median estimate of 73 economists surveyed by Bloomberg News. Revisions subtracted 154,000 from payroll figures previously reported for November and October.

The jobless rate was projected to jump to 7 percent from a previously reported 6.7 percent in November, according to the survey.

“Consumers are now going to get more and more scared at the prospect of losing their jobs,” said Nariman Behravesh, chief economist at HIS Global Insight in Lexington, Massachusetts.

‘Full Throttle’

The report showed the most rapid deterioration in the labor market over a six-month period since 1975, according to Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut. “Policy makers will go full throttle” until “the labor market starts to turn,” he said.

Obama is pressing for a stimulus plan including tax cuts and spending on everything from roads and schools to the energy network, to help pull the world’s largest economy out of a slump that’s in its second year.

The payrolls report was “a stark reminder about how urgently action is needed,” Obama said at a press briefing yesterday in Washington. “What we can’t do is drag this out when we just saw half a million more jobs lost.” He added that he will “make sure that Congress stays focused in the weeks to come” to pass the stimulus bill.

Fed Initiatives

Fed policy makers are planning to start a new program next month aimed at shoring up the market for financing car purchases, credit-card loans and student debt. Officials announced the effort in November at the same time as initiating a $600 billion program to purchase debt issued or backed by government-chartered housing finance companies.

The central bank has already lowered its benchmark interest rate to a range of zero to 0.25 percent, aiming to bring down borrowing costs. Officials’ main focus now is taking unorthodox steps, termed by analysts as quantitative easing, to boost the supply of credit in the economy.

“For policy makers, there is a message” in the payrolls figures, said Kurt Karl, chief U.S. economist at Swiss Re in New York. “The Fed will continue to do quantitative easing.”

Obama’s economic aides and lawmakers are also discussing ways to deploy the second half of the Treasury’s $700 billion financial-rescue fund. House Financial Services Committee Chairman Barney Frank favors using some funds to stem mortgage foreclosures, aid issuers of municipal bonds and help homebuyers.

Revised Figures

The Labor Department also issued revised figures from its household survey, which includes the unemployment rate, going back five years. Benchmark revisions to the payroll figures will be announced in February.

Last month’s decline was the 12th consecutive drop in payrolls. The economy created 1.1 million jobs in 2007.

During President George W. Bush’s two terms in office, the economy generated a net 3 million jobs, compared with 22.8 million created during the eight years when Bill Clinton was president.

Bush leaves office with unemployment at 7.2 percent, compared with the 4.2 percent rate he inherited from Clinton in January 2001. Unemployment was 7.3 percent when Clinton took office in January 1993, the last month that the jobless rate was higher than now.

Hourly Wages

Workers’ average hourly wages rose 5 cents, or 0.3 percent, to $18.36 from the prior month. Hourly earnings were 3.7 percent higher than December 2007. Economists surveyed by Bloomberg had forecast a 0.2 percent increase from November and a 3.6 percent gain for the 12-month period.

Factory payrolls shrank 149,000, the biggest drop since August 2001, yesterday’s report showed. Economists had forecast a drop of 100,000. The decrease included a loss of 21,400 jobs in auto and parts industries. Manufacturing, which makes up 12 percent of the economy, shrank in December at the fastest pace in 28 years, Institute for Supply Management figures showed.

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 273,000 workers. Retail employment dropped by 66,600. Government payrolls increased by 7,000 after falling 3,000 the prior month. Builders fired 101,000. Financial firms reduced payrolls by 14,000.

Reinforcing Cycle

Analysts said the economy may be in danger of a reinforcing cycle of rising unemployment and declining household spending, what policy makers call a negative feedback loop, which is difficult to snap once it’s begun.

Fed staff last month cut projections for gross domestic product and the job market, stating the unemployment rate was “likely to rise significantly into 2010,” according to minutes of policy makers’ December meeting.

Wal-Mart, the world’s biggest retail chain, this week said fourth-quarter profit will miss its earlier forecasts after sales rose less than analysts anticipated. Macy’s said December revenue slipped 4 percent and announced it would close 11 stores.

Sales at stores open at least a year dropped 2.2 percent in the last two month months of 2008, the biggest holiday-season decline since the International Council of Shopping Centers started keeping records in 1970, the group said this week.

Alcoa Pain

“These are extraordinary times, requiring speed and decisiveness to address the current economic downturn,” Klaus Kleinfeld, chief executive officer of Alcoa, said in a Jan. 6 statement announcing 13,500 job cuts worldwide. The world’s largest aluminum producer said it will trim an additional 1,700 contractor positions and froze hiring and salaries in some areas.

Some companies have taken other steps to lower costs. Caterpillar Inc., the world’s largest maker of construction equipment, will put 814 workers on an “indefinite” layoff, shipper FedEx Corp. cut the pay of Chief Executive Officer Fred Smith and other employees, and auto-parts supplier Visteon Corp. said it will trim the workweek and some salaries.

To contact the reporter on this story: Rich Miller in Washington at rmiller28@bloomberg.netShobhana Chandra in Washington schandra1@bloomberg.net

Last Updated: January 10, 2009 00:01 EST