The US saw its sharpest job losses in a month since 1974 with 533,000 posts shed in November.
The unemployment rate rose from 6.5 to 6.7 percent, the Bureau of Labor Statistics reported, with losses widespread across the major industry sectors.
This means 10.3 million Americans are out of work.
This week alone, telecoms group AT&T, entertainment firm Viacom, and DuPont, the chemicals group, laid off 33,000 workers.
President Bush admitted the economy is in recession for the first time on receiving the news.
"Our economy is in a recession," he said.
"This is in large part because of severe problems in our housing, credit and financial markets, which have resulted in significant job losses."
The US government has already pledged $700 billion of taxpayer money to rescue the banking sector and president-elect Barack Obama has pledged to repair the damaged economy.
Oil and commodities plunged on the news on fears the recession may be even deeper than was thought.
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