Fall in US employment is the worst since 1974 recession

More than half a million jobs were axed in the US last month, making November 2008 the worst period for the labour market since the recession of the mid-Seventies and presaging renewed pressure on consumer spending in the world's largest economy.

The data also triggered more concern over the US housing market, which is at the root of the credit crisis and where mortgage arrears and foreclosure proceedings soared to a new record in the third quarter, it was revealed yesterday.

In the expectation of slumping global growth, the oil price tumbled on both sides of the Atlantic, capping its worst week since the 1991 Gulf war. Brent crude in London fell below $40 a barrel for the first time in four years, and light sweet crude traded in New York settled at $40.81, 25 per cent lower than a week ago.

The total number of jobs lost last month was 533,000, the worst since December 1974 and the fifth worst since the Second World War. Economists had forecast a figure of about 350,000, although there had been clues throughout the week that they may have underestimated the hard-headedness with which business has responded to the credit crisis and the US recession.

Compounding the grim numbers from November, the Labour department revised upwards its estimate of the number of jobs lost in the previous two months as well. The total jobs lost in the past three months is now put at 1.2 million, and in the first week of December several major US corporations – from Wall Street banks, through telecoms and media firms to manufacturers and chemicals companies – have said they will start laying off thousands more workers.

"This has come on with a suddenness and a speed that is startling," said Kevin Logan, senior US economist at Dresdner Kleinwort. "The manufacturing sector has been shedding substantial numbers of jobs all year, but now this has hit the service sector, which is the biggest part of the economy, and it has hit it very hard."

The leap in lay-offs can be traced back to the contraction of credit to businesses which occurred during September's financial panic, according to Mr Logan, making the collapse of Lehman Brothers that month an economic event equivalent to the 1974 oil shock. "It piled a recession on top of a recession," he said.

The unemployment rate in the US rose to 6.7 per cent last month, according to the household survey also released yesterday, and it may have hit 7 per cent but for the fact that 422,000 people left the labour force. The unemployment rate is now at its worst level in 15 years.

"On all counts, the reports from both the payroll and household surveys paint one consistent picture – a true shocker," said the HSBC economist Ian Morris.

The president-elect Barack Obama has promised to sign an economic stimulus package immediately on taking office, which he promises will create 2.5 million jobs, and Mr Morris predicted official US interest rates could be taken down to zero at the Federal Reserve's next meeting on 16 December.

Yields on US government debt have fallen to record lows, and the 3-month T-bill was trading with an interest rate of 0.01 per cent yesterday for the third day in a row, reflecting investors' willingness to forego yield just to hold a risk-free asset over the end of the year.

In one positive sign, mortgage rates have fallen sharply this week in the expectation of intervention by the Treasury and the Federal Reserve, a fact which contributed to the late rally on the US stock market. The Dow Jones index ended up 259 points at 8,635.

Also yesterday, the Mortgage Bankers Association said the number of US homeowners seriously behind with their payments or already in foreclosure had now reached one in 10.