Rhode Island payrolls shrank for the second straight month in December and the unemployment rate climbed to 5.5 percent, its highest level in more than a year, a government report released today shows.

The state Department of Labor and Training reported that the number of unemployed people last month increased to 31,800, the highest number since June 1995.

Massachusetts last month lost 2,700 jobs, and the unemployment rate rose two-tenths of a percentage point, to 4.5 percent.

The national unemployment rate last month was 5 percent.

Rhode Island’s job market deteriorated during the second half of last year, as businesses kept payrolls level and state government tried to offset a deficit by making plans to slash its work force. The year ended with a job growth rate of about 0.7 percent, or 3,300 jobs, the state reported. The average annual growth rate is about 1 percent.

As more companies announce layoffs, state government struggles to close a $450-million deficit for the fiscal year that begins July 1 and the real-estate market freeze shows no sign of thawing, some local observers are uttering the dreaded r-word.

“I think we’re in a recession,” said Edward M. Mazze, a professor at the University of Rhode Island and the state forecaster for the nonprofit New England Economic Project. “There are virtually no new jobs being created,” he said, “and, more importantly, all you read about is layoffs … in state governments, Amgen, Bank of America.”

A local economic index shows that Rhode Island’s economy has been contracting for four months, from July through November, with all of the leading indicators “performing badly,” said the index’s manager, URI economics professor Leonard Lardaro. The index suggests that the state is in the “early stages of recession,” he said.

Job losses last month were reported in the service sector, including professional and business services, which reported the majority of job losses in temporary help and landscaping, the state figures show. Temporary hires are considered an economic indicator because they rise when the economy is growing and decline when it is contracting.

Manufacturing jobs last month also declined, along with the transportation and utilities sector, health care and social assistance, and accommodation and food services.

Retail trade employment last month was flat, but construction was up slightly.

The number of employed residents last month fell by 3,200, and was down 1,400 from December 2006.

The number of unemployed residents who reported actively seeking work last month jumped by 1,800, to 31,800, and is up 2,400 from December 2006, the state labor department reported.

The state’s job growth last year — 3,300 jobs, or just under 0.7 percent — is less than in 2006, when the state gained 5,700 jobs, an increase of 1.2 percent.

During the last four years, the state has added 12,900 new jobs, which average out to 3,225 per year.

Mazze, the NEEP forecaster, said he is already revising his December forecast to reflect fewer job gains this year, in part because of lower population growth estimates for the state. “I predicted a loss of 1,000 people in 2007,” he said, “and apparently we lost several thousand people.”

This year, he said, he had projected the state’s population would rise by 3,000, but he said “I’m sure my number is high now.”RHODE ISLAND JOBS BY SECTOR

WHOLESALE TRADE is State calculated estimate. Figures are seasonally adjusted.

SOURCE: The R.I. Department of Labor and Training

THE PROVIDENCE JOURNAL/PAT POTHIER

larditi@projo.com