Economy Slowing Toward Recession

The US economy is in a slowdown and heading in the direction of a full-blown recession, according to Labor Department figures. The only growth areas in employment - and these were modest - were health care and food service. The cost of oil even reached $100 a barrel. However, this won't affect Americans, says President Bush, because they buy their oil in small cans. (Stolen from Jay Leno)

Hopes that the economy could shake off the sub-prime mortgage mess and dodge recession grew fainter Friday as the Labor Department reported that U.S. employers last month added the smallest number of new jobs in more than four years -- driving the unemployment rate to a two-year high of 5%.

Word that payrolls grew by only 18,000 jobs in December extended a string of negative economic news in recent weeks. Oil briefly touched $100 a barrel. Auto sales slipped to their lowest annual count in a decade. And an influential survey of U.S. manufacturing posted its weakest results in nearly five years.

Even exports, which are supposed to be one of the country's economic bright spots, stumbled. Sales of new homes and orders for big-ticket items fell short of analysts' expectations. Business equipment spending declined. And jobless benefit claims have been on the rise.

The economy may yet avert recession. But analysts say that economic activity in some states -- notably California, Nevada and Florida -- as well as substantial swaths of the Northeast corridor is probably already contracting.

"The economy is operating at stall speed," said Mark Zandi, chief economist of Moody's Economy.com, a research firm in West Chester, Pa. "Either something is going to revive it quickly or else we're going to get into a vicious cycle of declining spending and even weaker job growth."

The obvious "something" is further interest rate cuts by the Federal Reserve, but those could threaten renewed inflation, drive down the already weak dollar and even set the stage for another bubble such as the one now deflating in the housing market.

The new job data sent shock waves through the stock market. The Dow Jones industrial average fell 256.54 points, or 2%, to close at 12,800.18. In only three days of trading so far this year, the Dow has lost half of its gain for all of 2007.