The U.S. economy ended the worst year of employment losses since the Great Depression with an unexpectedly large drop of 85,000 jobs in December -- dimming hopes of a quick upswing in hiring and intensifying Washington’s partisan fight over how to create more opportunities for workers.

The unemployment rate for the month was unchanged from November at 10%, the government said Friday, but that was only because droves of people, including many discouraged about the prospects of finding work, dropped out of the labor force and were no longer counted as unemployed.

“The increased number of discouraged workers is masking the true extent of joblessness,” said Anne Kim, economic program director at Third Way, a liberal policy think tank in Washington.

The latest report was all the more disappointing because the employment data for November raised hopes that the steep, two-year-long employment decline had hit bottom. And revised figures released Friday by the Bureau of Labor Statistics showed the economy added a net 4,000 jobs in November instead of losing 11,000 as initially estimated.


But in December, large payroll cuts in construction and manufacturing, possibly inflated a bit by the weather, as well as smaller losses in other industries again took their toll on the employment picture.

And job increases in health and education services and the temporary-help industry were not large enough to offset the losses.

Many economists had projected that the December report would show essentially zero job growth, with some forecasting a small increase that would be the beginning of a robust recovery in hiring in the not-too-distant future.

Although administration officials cautioned that the overall unemployment numbers might get worse before the hoped-for turnaround, President Obama, speaking Friday at the White House, said overall job trends were still promising.


When he took office in the first quarter of last year, the nation lost an average of 691,000 jobs a month. That fell to 69,000 jobs lost monthly in the fourth quarter.

The latest employment numbers “are a reminder that the road to recovery is never straight and that we have to continue to work every single day to get our economy moving again,” Obama said. “For most Americans, and for me, that means jobs.”

Republican leaders pounced on Friday’s report to attack the administration’s deficit spending and economic policies, while liberal groups insisted that this was not the time to pull back from stimulus programs aimed at spurring job growth and helping the millions of unemployed Americans with safety net programs.

“There’s no way around saying it was something of a setback from what we had seen in November,” said Christina Romer, chairwoman of the White House Council of Economic Advisors. “We now know that we added jobs in November. I want to be adding hundreds of thousands of jobs a month.”


The latest report was so bad that it cast doubt on an imminent positive turn in job growth, let alone a robust one, said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

“It’s totally plausible we’re going to lose jobs for several more months in 2010,” Baker said.

If that happens, it would prolong the suffering of millions of workers and could pose a serious threat to the sustainability of the broader economic recovery, which has been gaining some momentum.

It also holds potentially dire political consequences for incumbents in Washington.


By the latest tally, the economy has shed about 7.3 million jobs since the recession began in December 2007 -- almost half of them since Obama’s $787-billion economic stimulus program was passed by Congress last February.

And next month the government’s annual benchmark revisions of jobs data are likely to show that payrolls actually fell by about 8 million in the last two years.

Although much of Obama’s stimulus package has yet to be spent, the persistent job losses and high unemployment -- expected to climb higher as more people reenter the labor force -- present formidable challenges for the administration and congressional Democrats as they face midterm elections in November.

A stark statistic in the latest report is the staggering number of people who dropped out of the labor force in December and in recent prior months.


In December, the number of people working or looking for work declined 661,000 from November and more than 1.5 million from December 2008. The last time there was an annual decline in the labor force was in 1951. Before the recession, the labor force had been growing at about 1% a year, in tandem with the growth of the working-age population.

But the severe recession has prompted many discouraged people to give up looking for work. The economy needs to create roughly 125,000 net jobs a month to keep pace with the growing population and workforce, and economists say it will take several years to make up for the roughly 8 million jobs lost since late 2007.

In his brief prepared remarks at the White House, Obama singled out the importance of winning the global competition to develop renewable energy sources, which he and others believe will accelerate job growth.

The president announced that the government was using $2.3 billion in stimulus funds for tax credits aimed at manufacturing projects that will produce nonpolluting energy. The money will go toward 83 projects in 43 states and will create “tens of thousands of high-quality clean-energy jobs,” according to the White House.


“Harnessing new forms of energy will be one of the defining challenges of the 21st century,” Obama said. “And unfortunately, right now the United States -- the nation that pioneered the use of clean energy -- is being outpaced by nations around the world.”

The sour economy already has eaten into Obama’s job approval ratings, and in the new year the president must show more personal compassion for people suffering under the economic downturn, Democratic pollster Peter Hart said.

He needs to “get closer to the American people,” Hart said. “He needs to feel the hurt and feel what’s happening in the country.”

This month Obama will visit Ohio, one of a series of stops in places hit hard by the recession. Even so, that may all be seen as window dressing until the nation begins to add jobs. Asked when that might happen, Romer said this spring would be a realistic target.


Business owners aren’t so sure.

“It’s going to be a long haul,” said Kim Megonigal, chief executive of Kimco Staffing Services in Irvine. Although the temporary-staffing industry is seen as a harbinger of broader hiring, Megonigal doesn’t see substantial gains until next fall.

Despite recent signs of improvement in the housing and manufacturing industries, Friday’s report showed that construction employers cut 53,000 jobs last month, and manufacturing added to the misery by eliminating 27,000 positions. The two industries have borne the brunt of the job losses during the recession.

In the larger service-producing part of the economy, payroll declines have eased more significantly, but most sectors are still not adding net jobs. Retailers overall cut 10,000 jobs last month, even as they reported stronger-than-expected holiday sales this week. Leisure and hospitality businesses gave up 25,000 positions and government payrolls shrank by 21,000.


The two major industries that added jobs were health and education, which expanded by 35,000, and professional and business services, where employment rose by 50,000, boosted by the addition of 47,000 temporary-help jobs.

don.lee@latimes.com

peter.nicholas@latimes.com