The Labor Department's report, released Friday, underscored the terrible toll the deepening recession is having on workers and companies, and highlights the hard task President-elect Barack Obama faces in resuscitating the flat-lined economy.
For all of 2008, the economy lost a net total of 2.6 million jobs. That was the most since 1945, when nearly 2.8 million jobs were lost. Although the number of jobs in the U.S. has more than tripled since then, losses of this magnitude are still being painfully felt.
With employers throttling back hiring, the nation's jobless rate averaged 5.8 percent last year. That was up sharply from 4.6 percent in 2007 and was the highest since 2003.
Although economists were forecasting even more payroll reductions in December - around 550,000 - job losses in both October and November turned out to be deeper than previously estimated. Revised figures showed that the employers slashed 584,000 positions in November and another 423,000 in October.
The unemployment rate, meanwhile, rose from 6.8 percent in November, to 7.2 percent last month, the highest since January 1993. Economists were expecting the jobless rate to rise to 7 percent.
Job losses were widespread in December. Construction companies slashed 101,000, and factories axed a a whopping 149,000 jobs. Professional and business services got rid of 113,000 jobs. Retailers eliminated nearly 67,000 jobs, and leisure and hospitality reduced employment by 22,000. That more than swamped gains in education and health care, and the government.
Employers are chopping costs as they try to cope with dwindling appetite from customers in the U.S. as well as in other countries, which are struggling with their own economic problems.
Workers with jobs saw modest wage gains.
Average hourly earnings rose to $18.36 in December, up 0.3 percent from the previous month. Economists were expecting a 0.2 percent increase. Over the year, wages have increased 3.7 percent, although high prices for energy and food earlier this year made people feel like their paychecks weren't stretching that far.
The U.S. recession, which just entered its second year, is already the longest in a quarter-century, and is likely to stretch well into this year. The fact that the country is battling a housing collapse, a lockup in lending and the worst financial crisis since the 1930s make the current downturn especially dangerous.
G&K Services Inc., which provides uniforms and facility services, on Friday said it is eliminating 460 jobs as it aims to trim costs amid weak demand. And late Thursday, Intermec Inc., which makes electronic devices for tracking inventory, said it plans to cut 150 jobs, or 7 percent of its work force.
Earlier this week, drugstore operator Walgreen Co., managed care provider Cigna Corp., aluminum producer Alcoa Inc., data-storage company EMC Corp. and computer products maker Logitech International all announced major layoffs to cope with the recession.
All the problems have forced consumers and companies alike to retrench, feeding into a vicious cycle that Washington policymakers are finding difficult to break.
Obama says a bold approach is needed to bust through this cycle and revive economy.
"I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible," he said Thursday.
"If nothing is done, this recession could linger," Obama warned. "The unemployment rate could reach double digits."
Obama, who takes over Jan. 20, is promoting a massive package of tax cuts and government spending that could total $775 billion over two years. With add-ons by lawmakers, the package could swell to $850 billion, his advisers say.
Even with a new government stimulus and the Federal Reserve's decision to ratchet down a key interest rate to an all-time low, the unemployment rate is expected to keep rising. Some economists think it could hit 9 or 10 percent at the end of this year.