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Employers slashed their payrolls by 598,000 jobs in January, marking not only the biggest monthly cut since the recession began in December 2007, but the biggest since 1974, the Labor Department reported today. The unemployment rate rocketed to a more than 16-year high of 7.6 percent from 7.2 percent in December. The government also revised earlier job loss numbers to shower deeper cuts in November and December. About half of the 3.6 million jobs lost since the start of the recession have been lost in the past three months, indicating the economic slowdown is far from over.

What in the world is going on? The job market is simply continuing to deteriorate. Companies are cutting costs to make up for plummeting demand and a lack of available credit and investment. As the recession has deepened, job losses have become increasingly broad--now touching nearly all sectors of the economy. Manufacturing is bleeding jobs--the sector lost 207,000 jobs in January, the biggest loss since October 1982, according to the Labor Department. Construction lost 111,000, bringing the total jobs lost in construction to 1 million since January of 2007. The retail, transportation, and financial sectors all continued to cut payrolls. One bright spot: The health care industry and private education actually added jobs during the month.

What's next? There is not much good news to report. "We expect labor market conditions to remain dreadful for many months to come, which will reinforce the decline in consumer spending that is occurring for other reasons as well," says Joshua Shapiro, chief U.S. economist at MFR. This week's report on initial claims filed for unemployment may indicate that employers are actually accelerating job cutting this month, according to Morgan Stanley economists David Greenlaw and Ted Wieseman. "We look for the unemployment rate to continue to rise to about 9.75% by the end of 2009," they said in a morning note.

What about the stimulus? Recent polls indicate a majority of Americans support some sort of stimulus package, despite the contentious debate between parties in Washington. The continuing deterioration in payrolls will likely only increase public support for the massive bill, while also fueling critics who say the current plan is not sufficient. "Today’s jobs reports shows another disastrous month for construction jobs," Terry O'Sullivan, president of the Laborers’ International Union of North America, said in a statement this morning. "The current economic recovery plan does not go far enough to fully take advantage of the opportunity to create jobs that build America."

The stimulus is now in the Senate and, once passed, will take time to have an effect, so it will not do much for the current panic among employers. "Fiscal stimulus bill or not, the reality is that with the recession having intensified over the past few months, the credit markets still in a dysfunctional state, and business and investor confidence at rock bottom levels, labor market conditions will continue to deteriorate through 2009 with the unemployment rate likely rising into 2010," says Richard Moody, chief economist at Mission Residential.