The official figures from the Bureau of Labor Statistics showed 533,000 jobs vanished in November. Many economists had assumed that would be the worst month in the ongoing recession, yet if another 510k jobs are lost in December, as expected, the final month of 2008 certainly won't mark a turning point.

The average for unemployment benefits in December was 525,750 initial claims each week, a similar number to the 524,500 four-week average in November. The last two reports indicated that initial claims had dipped below the half-a-million threshold following a seven-week streak that saw as many as 589k claims. However, many economists dismissed the last two weeks of data as seasonal volatility.

More influential has been the release of the ADP employment sector report on Wednesday morning, which showed broad job cuts across all industries. The report suggested that nearly 700k jobs were shed from the economy in December, which points towards a similar drop in the official statistics.

Scott Anderson, senior economist for Wells Fargo, revised his forecast down by 100k to -600,000 upon the release of the ADP survey, which he said indicates that conditions were worse in December compared to November.

"What we expect to see is a sharp drop in service employment, which is a recent phenomenon in the payrolls numbers," Anderson said, noting the historic lows seen in the ISM non-manufacturing index. "That plays a big part in our labour market - about 85% of payrolls in the U.S. are based on the service industry."

Anderson also said manufacturing jobs will be cut back by "at least 120,000," partly on account of auto shutdowns. He added that the construction sector could see equally dismal results.

At Scotia Capital, Derek Holt is expecting to see a whopping 750,000 jobs to disappear in December - the most pessimistic forecast of the 72 economists polled by Bloomberg. With two exceptions before 1950, Holt notes "that would be the single biggest monthly drop in history."

Other analysts aren't sure conditions are that bad, however.

The forecasting team at Goldman Sachs said the ADP survey, which has overestimated employment since the economic downturn began, should be closer to the mark now that it has been revamped to better assess labour conditions, but they were hesitant to downgrade an already-pessimistic forecast.

"The history on this report is spotty to say the least," they said. "So while we will consider whether to change our forecast for nonfarm payrolls, at the moment we keep it at -550,000."

The official employment figures have the potential to be a major force in the markets.

Eric Lascelles, chief economics and rates strategist at TD Securities, said markets are probably overly pessimistic about the figures, and that there's a risk Treasuries will sell off if the data beat the consensus.

"We believe U.S. payrolls may have a sufficiently dire whisper number that it will be hard for the North American bond market to rally no matter what the outcome," he wrote in a research note.

Mark Frey, vice-president of FX trading at Custom House, said expectations on the trading floors are so bad that if fewer than 500k jobs were lost in the month, the U.S. dollar would actually improve.

"A loss of only 500,000 would be a positive story and we would see a general rally in risk acceptance," he said. "I think higher yielders like the Aussie dollar and the kiwi would (also) benefit from a rise in sentiment."

Also in the report, the unemployment rate is set to move up three-tenths to 7.0%, the highest rate since 1993. When 2008 began, it was just 4.9%, but as the recession spread throughout the economy, job cuts forced the rate up to 6.7% in November.

At the latest monetary policy meeting, when the Federal Reserve slashed rates to a band between zero and 0.25%, committee members said unemployment is "likely to rise significantly into 2010."

Similarly, while outlining his fiscal stimulus package on Thursday, President-elect Barack Obama said unemployment could reach double-digits this year if bold government action isn't taken to stave off the broadening recession.

Obama's diagnosis of the economy was so downbeat that rumours emerged he had already seen the report, and his speech was designed to prepare markets for an ugly outcome.

The hotly anticipated report will be released Friday at 8:30 a.m. EST.

By Patrick McGee, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Sarah Sussman, This email address is being protected from spam bots, you need Javascript enabled to view it

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