U.S. sheds more jobs, European industry slumps

NEW YORK (Reuters) - More than half a million Americans lost their jobs in December, making 2008 the worst year for U.S. employment since World War Two, while Europe's woes mounted as output from its factories plunged.

The U.S. unemployment rate jumped to a 16-year high of 7.2 percent in December as 524,000 people lost their jobs in the month, U.S. surveys showed. That brought the number of jobs lost in the world's largest economy in 2008 to some 2.6 million.

"The job situation is ugly and is going to get uglier," said Richard Yamarone, chief economist with Argus Research in New York. "There's no reason to expect hiring any time in the next three to six months. We are not going to see any hiring until the government steps in and acts. Talk doesn't work."

The U.S. job losses for December were fewer than analysts had expected, but stocks in the United States fell and European shares reversed earlier gains.

U.S. President-elect Barack Obama said the jobs data was a "stark reminder" of the need for speedy passage of a stimulus package.

"Clearly the situation is dire. It is deteriorating and it demands urgent and immediate action," Obama told a news conference.

Obama's economic team is working to overhaul the $700 billion rescue program to stem housing foreclosures, according to an aide. Half that money has already been spent, and many members of Congress have complained the earlier moves to shore up bank balance sheets have not eased credit for consumers.

Meanwhile, Boeing Co, the world's No. 2 plane maker, became the latest U.S. company to cut jobs, announcing it would shed 4,500 workers or 7 percent of the number in its commercial plane unit.

EUROPEAN SPIRAL

Germany, Britain, France, Spain and Sweden all reported collapsing factory output, with some posting the worst figures in many years, raising expectations that the European Central Bank would cut rates by half a percentage point to a record low of 2 percent next week.

Germany reported its biggest annual fall since 1993, dragged down by a downturn among manufacturers that is threatening to cause the worst recession in the country's post-war history.

Preliminary Economy Ministry figures showed output fell by 10 percent year-on-year as demand for cars and other capital goods faded across the globe.

"We're at the start of a really deep recession," said Juergen Michels, an economist at Citigroup in London.

Ireland's Finance Ministry warned the recession there would be its worst on record, and that the economy will not begin growing until 2011.

The U.S. Dow Jones Industrial average slipped 1.6 percent for its third consecutive downward move, while the pan-European FTSEurofirst 300 and Tokyo's Nikkei 225 index both dropped 0.5 percent.

U.S. oil prices also weakened by more than $1 to about $40.60 a barrel as the jobs report raised expectations that demand would remain weak.

British manufacturing output slumped much more than expected in November, official data showed. Output fell 7.4 percent year-on-year while the broader measure of industrial production fell 6.9 percent, both the weakest since 1981.

The figures are likely to reinforce expectations that British interest rates -- slashed to a historic low of 1.5 percent by the Bank of England on Thursday -- will fall to near zero in the coming months.

France's industrial output also continued its downward spiral in November, sliding a larger-than-expected 2.4 percent month on month on the back of further woes in the car industry.

"This is catastrophic, but sadly it reflects the reality of French industry," said Marc Touati, head of Global Equities in Paris.

The automobile industry has borne the brunt of the economic storm in France, with output dropping 8.1 percent in November after a dramatic 22.2 percent decline in October.

Underscoring the problems faced by the sector, French carmaker Renault posted a 4.2 percent drop in 2008 sales and said "inventory management and reduction" would remain a priority throughout 2009.

The picture was worse in neighboring Spain, with industrial output down a record annual 15.1 percent in November and analysts said the pressure was building on the European Central Bank to cut interest rates again.

"The data is much worse that what the ECB was predicting as recently as four weeks ago," said Jacques Cailloux, an economist with Royal Bank of Scotland.

CARMAKERS STRUGGLE

Hyundai Motor Co, South Korea's top automaker, said on Friday it plans to cut production at its domestic plants by 25 to 30 percent to offset a slump in demand.

Smaller local rival Ssangyong Motor Co said it was seeking court bankruptcy protection as the financial crisis further pounded the worldwide car makers.

Business confidence in China -- a star performer in the boom that preceded the crisis -- plunged in the final three months of 2008, an official survey showed. Manufacturers were hurt by shriveling U.S. and European demand and a weakening domestic property sector.

Japan's index of coincident economic indicators fell 2.8 points to a preliminary 94.9 in November from 97.7 in October, government data showed, signaling that the world's second-largest economy faces a deep recession.

(Reporting by Reuters bureaus; Editing by Ruth Pitchford, Brian Moss and Bernard Orr)