American employers cut 263,000 jobs last month, pushing the unemployment rate up to a 26-year high of 9.8%, in a sign of ongoing gloom in the labour market that stoked fears of a slow recovery from the worst financial downturn since the Great Depression of the 1930s.
The official figures from the US department of labour were far worse than economists had forecast. Together with a drop in factory orders and a slump in sales for Detroit's car manufacturers, they sent stockmarkets lower and sparked renewed talk of the possibility of a "double dip" recession.
September was the 21st consecutive month of shrinkage for the US workforce. The number of job losses accelerated sharply from a revised tally of 201,000 during August, and the rate of unemployment ticked up from 9.7% to 9.8%.
Speaking at a meeting of the White House's taskforce on middle-class families, Joe Biden, the US vice-president, acknowledged that the jobs report was "bad news" and said the recovery was likely to come in fits and starts.
"One job lost is one job too many," Biden said. "There's still too many hard-working Americans without a pay cheque, too many families struggling to get by."
Concern about the US economy contributed to a drop in London share prices, with the FTSE 100 index falling 48 points to 4999. Wall Street stocks opened sharply lower but, after its biggest fall for two months yesterday, the Dow Jones industrial average was down only 20 points to 9488 by late morning.
Most US experts believe that the world's largest economy is no longer in recession, with GDP likely to show a rise for the third quarter. But the US economy has lost 7.2m jobs since the downturn began at the end of 2007, and 15.1 million people are looking for work.
Companies are continuing to cut costs. Among the weakest sectors was construction, hit by plunging property prices, where 64,000 jobs disappeared. Employers cut 51,000 manufacturing jobs and 39,000 retail positions. Even the government's payroll declined, falling by 53,000, in spite of public works funded by the Obama administration's $787bn (£500bn) stimulus package.
Nigel Gault, chief US economist at IHS Global Insight, said there was "no silver lining" to the figures, with leading indicators such as temporary jobs and the length of the working week still declining.
Adding to the misery, the commerce department said that new orders to US factories for manufactured goods fell by 0.8% in August, the largest decline in five months. Yesterday, Detroit's struggling carmakers said that the end of the government's "cash for clunkers" subsidy programme had sent their business plunging, with General Motors and Chrysler both recording year-on-year sales drops of more than 40% for September.
The weak picture ought to mean that there will be no increase in US interest rates until 2012 at the earliest, according to Ian Morris, HSBC's head of US economics.
"[Federal Reserve chairman Ben] Bernanke should tell his colleagues to hold fire on all the hawkish talk until we get at least one month of positive payrolls," Morris said.
Companies in the United States are shedding more jobs, pushing the country's unemployment rate to a 26-year high of 9.8%.

The US Labor Department said on Friday that employers cut 263,000 jobs in September, with companies in the service industries — including banks, restaurants and retailers — hit especially hard.  This is the 21st consecutive month of job losses in the country.

The United States has now lost 7.2 million jobs since the recession officially began in December 2007. The new data has sparked fears that unemployment could threaten an economic recovery. Top US officials have warned that any recovery would be slow and uneven, and some have predicted the unemployment rate will top 10% before the situation improves.

"Continued household deleveraging and rising unemployment may weigh more on consumption than forecast, and accelerating corporate and commercial property defaults could slow the improvement in financial conditions," read a report by the International Monetary Fund's World Economic Outlook, predicting that unemployment will average 10.1% by next year and not go back down to five percent until 2014.

Mark Zandi, chief economist at Moody’s Economy.com, said that “it’s a very fragile and tentative recovery. Policy makers need to do more.”

"The number came in weaker than expected. We saw a lot of artificial involvement by the government to prop up the markets, and now that that is starting to end, the private sector isn't yet showing signs of life," said Kevin Caron, a market strategist for Stifel, Nicolaus & Co.

Also on Thursday, the US Commerce Department said factory orders fell for the first time in five months, dropping eight-tenths of a percent in August.  Orders for durable goods — items intended to last several years (including everything from appliances to airliners) — fell 2.6%, the largest drop since January of this year. 

The US government has been spending billions of dollars — part of a $787 billion stimulus package — to help spark economic growth.  There have been some signs the economy is improving.

The Commerce Department said on Thursday that spending on home construction jumped in August for its biggest increase in 16 years. A real estate trade group, the National Association of Realtors, said pending sales of previously owned homes rose more than 12 percent in August, compared to August 2008.

A separate Commerce Department report said that consumer spending, which accounts for more than two-thirds of US economic activity, rose at its fastest pace in nearly eight years, jumping 1.3 percent in August.

Other reports have provided cause for concern. A banking industry trade group said Thursday the number of US consumers making late payments, or failing to make payments, on loans and credit cards is on the rise. A survey by a business group, the Institute for Supply Management, Thursday showed US manufacturing grew in September, but at a slower pace than in August when manufacturing increased for the first time in a year and a half.  

Stock markets reacted negatively to the reports. The Dow Jones Industrial Average fell 41 points in early trading, reaching a level of 9467. This follows a drop of 203 points on Thursday, its largest loss in a single day since July. The London FTSE index fell 55 points, or 1.1%, to reach 4993 points by 15.00 local time.