The US economy shed 533,000 jobs last month as the worst employment figures since 1974 underlined the scale of the economic crisis gripping the country.

The shock data for November far exceeded economists' most pessimistic estimates as it was revealed that 1.9 million people have lost their jobs since the world's largest economy entered a recession last December. The FTSE 100 index fell 2.7% as it closed down 114 points at 4049 on the news but Wall Street rallied, with the Dow gaining 259 points on the hope that falling oil prices will boost consumers and businesses.

The US unemployment rate is now 6.7%, up from 6.5% in October, its highest level since 1993.

Nigel Gault, chief US economist at forecasting firm IHS Global Insight, said the economy was now destined for its worst recession since the second world war. "These are just absolutely disastrous numbers," he said.

The figures will increase the expectation on the incoming president, Barack Obama, who is planning an economic stimulus package when he takes office in January. Some experts have called for an injection of at least $700bn (£380bn) into the US economy and Obama has pledged to create 2.5 million new jobs over his first two years in office.

Obama warned today that "there are no quick or easy fixes" to the crisis as he again avoided giving specific details on how he will jump-start the economy, preferring to outline his programme when he assumes office on January 20. He added: "At the same time, this ... provides us with an opportunity to transform our economy."

Today's announcement brings the jobless total to 10.3 million people out of a total workforce of 154.6 million. Economists believe the unemployment rate will peak at between 8.7% and 9.8% over the next two years. "We are going to see the labour market remain very, very weak throughout the remainder of this year and 2009. It hinges on the monetary and fiscal response," said Ryan Sweet , senior economist at Moody's economy.com.

The Federal Reserve Bank will consider the latest jobs figures when it discusses interest rates, currently at 1%, on December 16. Economists said the US central bank could be encouraged to cut rates further amid confirmation today that inflation is a vastly diminished threat, with the spot price of Brent crude oil falling to less than $40, against a record high of $147 earlier this year.

Hourly employee earnings also posted a modest month-on-month rise, up 0.4% to $18.30, underlining the lack of upward pressure on wages. However, economists warned that the hourly earnings figure did not bode well for consumer spending, which accounts for more than two-thirds of US economic activity.

The employment data also points to a severe contraction in the world's largest economy in the final quarter of this year, with many forecasts indicating a decline in gross domestic product of 4% following a fall of 0.5% in the previous three months. The US economy tipped into recession in December last year, a panel of experts declared earlier this week.

Wachovia, the Charlotte-based banking group, said it now expected the US economy to decline by 5% because the downturn, driven by a credit shortage that is reining in consumer spending, has spread to nearly all sections of the economy.

"Over the last year, the breadth of industries adding jobs has dropped sharply suggesting broad weakness in consumer spending and dismal consumer confidence," said John Silvia, chief economist at Wachovia.

Today's jobs data showed job cuts in every sector barring healthcare, education and the government. The service industry suffered the heaviest job losses in November, shedding 370,000 posts. Within that total, retailers axed 91,000 jobs and professional and business services, which includes the financial sector, made 136,000 people redundant. The goods-producing industries lost 163,000 jobs with 82,000 jobs going in construction and 85,000 in manufacturing. Companies that shed jobs last month included Toy firm Mattel, electronics retailer Circuit City and Citigroup, the banking giant.

The bleakest forecasts had predicted job losses of up to 500,000. Today's number for declines in non-farm payrolls easily outstripped mid-range forecasts of less than 400,000 and is the worst since December 1974, when 602,000 people lost their jobs.

The jobless rate in the 1980 to 1982 recession peaked at 10.8%, the worst since the Great Depression. The current US recession is expected to match its post-war predecessors in terms of length. According to the National Bureau of Economic Research, which called a recession this week, the downturn is 12 months old and needs to last five more months to outrank the 1973-1975 and 1980-1982 recessions.

The figures for September and October also saw sharp upward revisions, meaning almost 200,000 more jobs were lost than had initially been thought. The original estimates for September were 284,000 and 240,000 in October, however those have been revised upwards to 403,000 and 320,000 respectively.

The news comes in the same week retailers confirmed that consumer spending is in full-scale retreat with major stores announcing November sales declines of more than 10%.

Retailers traditionally hire more workers for the peak shopping season but the November sales figure indicates that December could be a dire month for jobs as well.

"We are going to see weak seasonal hiring in the retail sector and there are very few sectors that are adding jobs," said economy.com's Sweet.