NEW YORK (Reuters) - Job losses and plans to lay off workers hammered the struggling U.S. economy in the final month of 2008, according to private reports that could foreshadow surprisingly grim labor market data from the government on Friday.

U.S. private employers shed 693,000 jobs in December, up sharply from the revised 476,000 jobs lost in November and far more than economists estimated, a report by ADP Employer Services said on Wednesday.

The data comes two days ahead of the government’s more comprehensive non-farm payrolls report, which unlike the ADP numbers includes public sector jobs as well.

Analysts said there was reason to expect a worse outcome in non-farm payrolls than their original projection of 500,000 jobs lost for the economy in December, which was the median of economists’ forecasts in an earlier Reuters poll.

“This is shockingly awful,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

“If the recent relationship between the ADP numbers -- after their recent revisions -- and the official payroll data holds, then we should expect a number of about minus -700,000 on Friday, the biggest drop in 59 years.”

Most analysts noted Wednesday’s ADP report was the first released under a new methodology, warning of uncertainty over its forecasting power. Still, the new system was designed to more closely mirror the government’s monthly payrolls results.

Separate data showed planned layoffs at U.S. firms eased in December from the previous month’s seven-year high but were up an astounding 275 percent annually as the year-old recession cut a huge swathe of destruction through job market.

The economic slump, which is likely to be the longest since the Great Depression of the 1930s, also produced the worst year of layoffs since 2003, outplacement company Challenger, Gray & Christmas added in its monthly report on U.S. job cuts.

The grim data helped push U.S. stocks lower. Government bond prices, which generally benefit from signs of economic weakness, pared their losses in the immediate wake of the ADP release but later went back on the slide.

Underlining the bleak outlook, the Congressional Budget Office said in new forecasts released on Wednesday that it expected the U.S. economy to contract 2.2 percent in 2009 before recovering in 2010 to grow 1.5 percent.

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The ADP December job losses were the biggest since the survey’s launch in 2001.

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“Expectations for Friday’s nonfarm payroll release will be more pessimistic than they were before this morning’s data round,” said Christopher Low, chief economist at FTN Financial in New York.

“For now, the consensus is minus-500,000, but we have to assume people are thinking minus-600,000 or more is possible.”

Indeed, Scott Anderson, senior economist at Wells Fargo Economics in Minneapolis, said he raised his forecast to “at least 600,000” December job losses from an earlier projection of 500,000.

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Anderson also raised his forecast for the unemployment rate to 7.1 percent from 7.0 percent before. The median forecast for unemployment in the Reuters poll was a rise to 7.0 percent from November’s 6.7 percent.

Analysts at RDQ Economics also said they raised their expectations to 600,000 job losses from their earlier projection of 500,000.

Shepherdson, at High Frequency Economics, said even the best case scenario implied a payrolls drop of 568,000.

Joel Prakken, chairman of Macroeconomic Advisers, which jointly developed the ADP report, said the ADP data was consistent with a loss of about 670,000 jobs in the payrolls report, assuming some 20,000 government jobs would be added.

Worse yet, he said he still expected a little more than 2 million U.S. job losses over the next year.

He added that the U.S. economy probably contracted at a 5.5 percent annualized rate in the fourth quarter and would shrink 3.5 percent in the first quarter of this year.

“After that economic growth is going to depend on the size and timing of the fiscal package that is being discussed in Washington right now,” Prakken said.

The Challenger report said heavy job-cutting could continue through at least the first half of 2009.

Job cuts announced in December totaled 166,348, down 8.4 percent from November’s 181,671, Challenger, Gray & Christmas said. Despite the monthly decline, layoffs were up from just 44,416 in the year-ago period.