Annual loss is biggest since the end of World War II. Payrolls shrink by 524,000 in December, and unemployment rate rises to 7.2%.

Another sobering government labor report released Friday showed the economy lost 524,000 jobs in December, bringing 2008's total job loss to just below 2.6 million.

Last year's steep drop in employment marked the highest yearly job-loss total since 1945, the year in which World War II ended.

Economists surveyed by Briefing.com had forecast a loss of 525,000 jobs in the month.

According to the Labor Department's monthly jobs report, the unemployment rate rose to 7.2% last month from 6.7% in November and higher than economists' forecasts of 7%.

The unemployment rate, which is compiled in a separate survey from the payroll number, was at its highest level since January 1993.

The vast majority - 1.9 million - of last year's job losses came in the final four months of 2008, after the credit crisis began in September. November's job loss was revised up to 584,000 from 533,000, and October was revised up by 103,000 to 423,000.

Job losses were spread across a wide variety of industries. Manufacturing lost 149,000 jobs, the leisure and hospitality industries cut 22,000 jobs, and construction employment shrank further by 101,000 jobs.

Even in the midst of the holiday shopping season, retailers still slashed payrolls by 66,600 workers last month.

Professional and business services, a category seen by some economists as a proxy for overall economic activity, had a 113,000-job drop in employment. And financial services jobs fell by 14,000.

December's job losses were expected to be deep, as employers looked to slash payrolls to free up balance sheets for the new year. But large-scale cutbacks may continue throughout the first half of 2009, economists say, as the nation's economy continues on its slow path to recovery.

The economy has lost more than 2.5 million jobs in the current recession, which began in December 2007, far surpassing the previous two recessions, and just below the 2.7 million jobs lost in the 1981-1982 recession, which had the deepest unemployment in the 70-year history of the report.

In another sign of weakness, a growing number of workers were unable to find jobs with the amount of hours they want to work. Those working part-time jobs - because they couldn't find full-time work, or their hours had been cut back due to slack conditions - jumped by 715,000 people to 8 million, the highest ever on records that date back to 1955.

The so-called under-employment rate, which counts those part-time workers as well as those without jobs who have become discouraged and stopped looking for work, rose to a record 13.5% from 12.6%. Calculations for that measure began in January 1994.

"The existing unemployment figures are greatly understated," said billionaire steel tycoon Wilbur Ross in a recent interview with CNNMoney.com. "They count as employed someone who used to have a high-paid manufacturing job, and now is working at a Wal-Mart or a Wendy's."

Temporary employment, including workers employed by temp agencies, fell by another 80,600 jobs last month, after falling by 94,100 in November - the highest on records that go back to 1985. That could mean even more full-time payroll reductions to come, as employers often cut temporary workers before they begin cutting permanent staff.

In another discouraging sign, the average hourly work week fell last month to 33.3 hours - the lowest level in history - from 33.5 hours. Even with a modest 5-cent gain in the average hourly salary, the average weekly paycheck fell by $2 to $611.39.

But some industries were hiring last month. Government hiring, which has stayed relatively strong throughout the downturn, added another 7,000 jobs in December. Education and health services also grew payrolls by 45,000 employees.

President-elect Barack Obama has begun his push for a massive stimulus plan, aimed at creating or saving 3 million jobs over the next two years. Many economists and lawmakers have called for rapid action to address the extraordinary stresses facing the labor market, including spending hundreds of billions of dollars on new infrastructure projects.

"The country is losing half a million jobs in a month, and if the government doesn't act quickly, there's no reason that wouldn't intensify," said Mark Zandi, chief economist of Moody's Economy.com.

Infrastructure experts agree, saying unemployed construction workers are eager to get back to work.

"Putting money into highways won't by itself end the recession, but it will put a lot of skilled workers back on job," said Ken Simonson, chief economist for The Associated General Contractors of America.