Jan. 9 (Bloomberg) -- U.S. job losses may double to more than 5 million by the end of 2009, the most since the Great Depression, as a prolonged recession shatters business confidence, economists said.

Payrolls may drop by an additional 2.4 million workers this year, projected Ethan Harris, co-head of economic research at Barclays Capital in New York. The Labor Department reported today that job losses last year totaled 2.6 million, the biggest annual decrease since 1945.

“We’re still in the accelerating downturn phase of the labor market,” said Harris. “The hope would be that the worst of this is over by the end of the first quarter and we get into more typical recession-type job losses. We’ve got to first get past this serious-downturn phase.”

Slumping sales during what may turn out to be the worst recession in the postwar era will give businesses more incentive to pare staff and spending. President-elect Barack Obama has pledged “unprecedented” government stimulus measures that may total $775 billion while the Federal Reserve has cut lending rates to as low as zero to jumpstart the economy.

The world’s largest economy lost 524,000 jobs in December, following a decline of 584,000 the prior month, the Labor Department said today. The unemployment rate rose to 7.2 percent, a 15-year high, from 6.8 percent in November.

Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, pegged the likely decline in payroll employment this year at 3 million. A downward spiral of job losses and declines in consumer spending followed by more job cuts has already been triggered, he said.

Rising Unemployment

Economists surveyed by Bloomberg News at the beginning of December forecast unemployment would rise to 8.2 percent by the end of 2009. Gault projects it may reach almost a percentage point higher.

“Firms have been extremely quick to cut back,” said Gault.

Obama, who takes office on Jan. 20, today said the loss of jobs last year is a “stark reminder” of the need for Congress to act with urgency on his plan to boost the economy.

“Clearly the situation is dire. It is deteriorating,” Obama told a news conference in Washington. “For the sake of our economy and our people, this is the moment to act, and to act without delay.”

Obama is proposing a two-year stimulus plan that includes about $300 billion in tax cuts and infrastructure spending aimed at creating or saving 3 million jobs.

Long Implementation

“We shouldn’t be hoping for too much, too soon on this stimulus package,” Gault said. “The part of the stimulus package that’ll be the most effective in creating jobs directly is infrastructure spending. But that’s the part that’ll take the longest to implement.”

The recession, already in its 13th month, is likely to surpass the 16-month downturns in 1981-82 and 1973-75 that are now the longest in the postwar period. Economists surveyed by Bloomberg last month forecast the economy will continue to shrink through the first half of 2009.

Even after the economy stops shrinking, job losses are likely to continue for at least some months, economists said.

Harris said it’s important to keep the projected drop in employment this year in context by comparing it to today’s larger workforce.

A loss of 5 million jobs would represent about 3.6 percent of the average 137 million in total payroll employment last year. Still, that would be the biggest proportional drop since the 1957-58 recession, when employment fell by about 4.5 percent.

“You need to think in percentage terms here,” Harris said. Still, we’re “in pretty ugly company.”

The unemployment rate jumped to 25 percent in 1933, in the midst of the Great Depression, according to Census Bureau data.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: January 9, 2009 14:34 EST