The U.S. Labor Department said the nation’s economy lost 159,000 jobs in September, a sign that the picture continues to darken as the credit crunch pressures businesses.

The loss was much bigger than Wall Street was expecting. Economists were looking for a loss of 101,000, according to data provided by Thomson Reuters. It was the sharpest decline in jobs since March 2003.

The unemployment rate held steady at 6.1% from the month before.

“The jobs report was a bit weaker than what we were expecting, but it’s pretty consistent with what we’re seeing in the rest of the economy,” said Doug Smith, chief U.S. economist with Standard Chartered Bank in New York.

The decline in jobs was not caused by Hurricanes Ike and Gustav, the Labor Department said -- an indication that the larger-than-expected drop was economic, not weather-related.

The loss of jobs was broad-based, the Labor Department said. According to the data, all sectors saw declines except government, education and health-related industries. Those parts of the labor force are usually considered recession-resistant, and education employment usually goes up in September because of the start of school.

Some of the more notable losses were in the service sector, where the industry lost 82,000 jobs for the month. The retail industry also took a 42,000 job-loss hit. 

The pace of the job loss is problematic for Smith and other economists. While in past recessions the nation has seen losses of 200,000 or even 300,000 jobs in a month, this jobs report indicates that the labor market will get worse before it gets better

“We could see the unemployment rate rise to 6.5% or 6.8% if this pace keeps up,” Smith said.

The average hourly earnings for the month rose by 0.2% for the month, less than the 0.4% expected by economists.

The unemployment remained steady despite the job losses because of the decrease in people actively searching for work, according to Wall Street economists. The government's official description of unemployment is people who are out of work, but actively seeking a job. When someone loses their job but does not seek a job, they are considered out of the work force - not unemployed.