Evidence of recession building

WASHINGTON - If this isn't a recession, it's looking an awful lot like one.

The unemployment rate has taken the biggest jump since the 2001 terrorist attacks, a key gauge of manufacturing activity has fallen to a five-year low, and now consumer spending, which had been a standout performer, is starting to sag.

The Commerce Department reported yesterday that retail sales fell a sharp 0.4 percent in December, handing retailers their worst Christmas in five years.

It seems that consumers, who account for two-thirds of total economic activity, have slowed their spending in the face of an array of problems. And the worry is that they may cut back further.

Already, consumer confidence has slipped significantly amid the spiral of oil prices, the sagging of home prices, the rising of mortgage defaults, and the increasing of unemployment.

"There is certainly enough out there to make people worry," said David Wyss, chief economist at Standard & Poor's, of New York. "We think we are getting very close to a recession."

Former Federal Reserve Chairman Alan Greenspan said it might already be under way.

"The symptoms are clearly there," he said in a Wall Street Journal interview published yesterday. President Bush, visiting the Mideast, yesterday warned that surging oil prices threatened the U.S. economy and urged OPEC nations to boost their output. His plea drew little sympathy from oil-rich Saudi Arabia, which said production levels appeared normal.

Stock prices, a leading economic indicator, continued their 2008 swoon. The Dow Jones industrial average fell 277.04 points to close at 12,501.11, the lowest in nine months. Investors were rattled by an announcement from Citigroup Inc. that it had sustained a $10 billion loss in the fourth quarter, reflecting in part the souring mortgage market.

Even before the problems with December retail sales, businesses were seeing inventories rise, including a 0.4 percent increase in November. An unwanted rise in inventories can translate into future production cutbacks by factories. A key gauge of manufacturing activity gave a recession reading earlier this month, falling to its lowest level in five years.

In other news yesterday, the Labor Department said wholesale prices, which had shot up 3.2 percent in November, the largest amount in 34 years, actually dipped 0.1 percent in December. That reflected a big drop in energy costs at the time. However, for all of 2007, wholesale prices rose 6.3 percent, the biggest annual increase in 26 years.

Analysts said the dip in wholesale prices for December, if followed by a benign report today on consumer prices, should give the Federal Reserve leeway to more aggressively attack the economic slowdown with interest-rate cuts.

Federal Reserve Chairman Ben S. Bernanke sent a strong signal last week that the central bank was more worried now about weak growth than about inflation, prompting markets to believe the Fed would cut a key interest rate by a half-point at the end of this month.

Unemployment jumped from 4.7 percent in November to 5 percent in December, the biggest one-month leap since October 2001, when the country was still reeling from the terrorist attacks.

Many economists said they believed that economic growth, which was powering ahead at a 4.9 percent rate in the third quarter, thanks to strong consumer spending, slowed to a barely discernible 1 percent rate in the final three months of last year and may now be dipping into negative territory.

The 0.4 percent fall in retail sales, which followed a 1 percent jump in November sales, reflected widespread weakness. Some analysts said the December performance was depressed in part by the fact that Thanksgiving came early this year, pushing some Christmas sales into November.