Jan. 7 (Bloomberg) -- Reports issued two days before the release of U.S. jobless data showed private employers cut payrolls at a faster pace in December, threatening to send the unemployment rate to levels unseen in a quarter century.

“The level of unemployment is going to be higher” and may exceed 10 percent, Martin Feldstein, the former National Bureau of Economic Research president and Harvard University professor said in a Bloomberg Television interview. “It’s really bad and it needs a fix,” he said before a hearing on the fiscal-stimulus plan with House lawmakers in Washington.

Companies cut an estimated 693,000 jobs in December, the most since ADP Employer Services began its gauge based on payroll data in 2001. Chicago-based Challenger, Gray & Christmas Inc. said firings announced by U.S. employers rose 275 percent last month from December 2007, to 166,348.

Stocks fell the most in more than a month after reports from Alcoa Inc. and Intel Corp. spurred concern the outlook for profits is worsening. Feldstein, a White House economic aide in the Reagan administration, endorsed the $775 billion fiscal stimulus planned by the incoming administration of Barack Obama, which aims to save or create 3 million jobs.

‘Facing a Crisis’

“We are facing a crisis in our economy, one that requires immediate and decisive action to spur the creation of new jobs,” Obama said at a press conference in Washington. House Speaker Nancy Pelosi said at the forum attended by Feldstein that “a failure to act quickly can only lead to more job losses,” saying Congress should act on the recovery package by mid-February.

The Standard & Poor’s 500 Stock Index fell 3 percent to close at 906.65, and the dollar lost 0.7 percent against the euro to $1.3635 at 4:13 p.m. in New York. Treasuries slid after a record auction of three-year notes added to concern the government will need to sell more debt as tax receipts slump and authorities implement a $700 billion financial-rescue program. Benchmark 10-year note yields rose to 2.48 percent from 2.46 percent late yesterday.

The drop in the ADP gauge was larger than the median estimate of a 495,000 decline in a Bloomberg News survey of 24 economists.

“Unemployment is going to rise to 8.5 percent by mid-year, and our hope is that it stops there,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York; the jobless rate was 6.7 percent in November. “It’s taking away labor income from consumers, and that’s going to be a further drag on consumer spending. If you’re not generating enough demand, it’ll entail further cuts in production.”

2.4 Million

The Labor Department may report that employers slashed jobs in December for a 12th consecutive month, putting total job cuts at 2.4 million for 2008, according to a Bloomberg survey median.

Today’s ADP report is the first to reflect methodological changes that ADP says will narrow the differences between its calculations and the government’s payroll numbers.

Revised figures issued Dec. 18 by ADP and Macroeconomic Advisers showed the discrepancies with Labor Department data narrowed considerably using the new approach. The new data put ADP’s estimate of job losses from September through November at 1.03 million, more than double its prior projection and closer to the government’s figures showing a decline of 1.29 million in private payrolls for the period.

Joel Prakken, chairman of Macroeconomic Advisers LLC, said in a conference call that about 2 million more jobs will be lost in 2009, for a total of more than 4 million in the recession.

“In the last several months, the job losses have spread very aggressively into the services economy,” he said.

Fewer Want Ads

The number of online help-wanted advertisements in the U.S. dropped by 507,000 in December from a month earlier, according to a report today from the Conference Board, a New York private research group. Vacancies decreased in 49 of the 50 states and the total number of ads fell under 4 million for the first time since July 2006.

ADP includes only private employment and does not take into account hiring by government agencies, which is included in the monthly payroll report. Macroeconomic Advisers LLC in St. Louis produces the report jointly with ADP.

The government may report on Jan. 9 that total payrolls fell by 500,000 last month, and the unemployment rate rose to a 15- year high of 7 percent, according to the Bloomberg survey median. The economy lost 1.9 million jobs in the first 11 months of the year.

Investment Losses

Financial-service companies and manufacturers are leading the cutbacks. Cigna Corp., the health insurer whose shares fell 69 percent last year because of investment losses, said this week it will cut about 1,100 jobs and take a fourth-quarter after-tax charge of $30 million to $40 million for 2008.

A declining stock market and the recession have eroded the earnings outlook for Cigna, which relies on investment returns for almost two-thirds of pretax income.

“Given the unprecedented economic situation we and our customers are facing, these actions are essential,” said Cigna Chief Executive Officer H. Edward Hanway in a Jan. 5 statement. “Decisions like these are difficult and never made lightly, but they are necessary given the current environment.”

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

Last Updated: January 7, 2009 16:15 EST