US employers cut more than 80,000 jobs last month, triggering the sharpest fall in the number of Americans in work for five years.

The worse than expected figures, the latest confirmation that the world's biggest economy is already in the grip of recession, marked a third month in a row of falling employment, and raised the US jobless rate to a two-and-a-half year high of 5.1 per cent last month, from 4.8 per cent in February.

Anxiety over the outlook was fuelled as revisions to earlier figures added an extra 67,000 lost posts to cuts in companies' payrolls in the previous two months. The additional job losses meant that US employers have axed 232,000 posts from the workforce in three months.

Economists said that the figures were wholly consistent with a recession having already taken hold. In the private sector, employers' payrolls have fallen by about 100,000 in each of the past three months - a scale of job losses that has never previously been seen except during recessionary episodes.

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Analysts said that the data are probably only the start of a sharp rise in US unemployment, noting that job losses on the present scale have always in the past been a precursor to still sharper monthly falls in employment of 200,000 or more in future months.

Paul Ashworth, of Capital Economics, said: “Conditions are already bad in the labour market but, if history proves to be a reliable guide, they are going to a lot worse over the next few months.”

The detailed figures showed that the job losses now blighting the US are widespread across sectors. The headline drop of 80,000 would have been even worse but for an extra 18,000 government posts created last month. The construction sector cut 51,000 jobs, while 48,000 were axed in US manufacturing. In the services sector, a meagre 13,000 new posts were created to offset these losses, although 35,000 jobs went in the business services sector.

The data fuelled immediate predictions on Wall Street that the Federal Reserve will now cut US interest rates by a further half-point when it next sets policy at the end of this month.

“Substantial rate cuts remain very likely in this environment,” Rob Carnell, of ING Markets argued. He said he expected US official rates to fall to only 1 per cent by June, from 2.25 per cent - steeper cuts than financial futures markets expect, with those presently pointing to rates reaching a trough of 1.5 per cent.

Ian Shepherdson, of High Frequency Economics in New York, also predicted a half-point cut in the Fed's key Fed Funds rate this month. “The trends are awful. Unemployment will keep rising, squeezing spending,” he said.

— The latest bleak news on US conditions came as eurozone finance ministers sought to talk up prospects in the 15-nation bloc, while sounding warnings over the threat to the outlook posed by persistent inflation.

In spite of widespread concerns that the credit squeeze will undercut eurozone growth, eurozone economic leaders attempted to quell anxieties in financial markets, offering a reassuring assessment during talks in in Slovenia yesterday.

Peer Steinbruck, Germany's Finance Minister, said: “Economic data differs from country to country, but European development is relatively positive.”

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