The first full week of 2009 didn't bring Wall Street any huge shocks, but it didn't bring much for investors be happy about, either.
A jump in unemployment sent stocks sharply lower Friday as investors feared that Americans won't soon deviate from their tightened budgets. The Dow Jones industrial average fell 143 points to end the week down nearly 5 percent.
The Labor Department's much-anticipated report showed employers cut 524,000 jobs in December, a smaller decline than the loss of 550,000 jobs economists forecast. But the unemployment rate jumped to a 16-year high of 7.2 percent — more than the 7 percent economists predicted — from 6.8 percent in November.
Lost jobs were not a shock to Wall Street, but the news still stung.
"People say that they know how bad the economy is. But they don't know how it feels to have the reality hit home," said Stu Schweitzer, global markets strategist at J.P. Morgan's Private Bank. "It's not the facts — it's how the facts feel. And it feels terrible to have so many Americans losing jobs, and so many more likely to follow in the coming months."
Rising unemployment tends to erode consumer spending, which accounts for more than two-thirds of U.S. economic activity. For all of 2008, the economy lost 2.6 million jobs — the most since 1945. Retailers have been reporting dismal holiday sales figures, and Wall Street is concerned about how long the economy will be suffering a pullback in consumer spending.
President-elect Barack Obama on Friday called December's jobs loss "a stark reminder of how urgently action is needed" to revive the nation's staggering economy. Obama is planning on a stimulus package costing about $800 billion, consisting of tax cuts and other ways to try to help individuals and businesses.
But investors were nonetheless worried about the prospects for the economy.
According to preliminary calculations, the Dow Jones industrial average fell 143.28, or 1.64 percent, to 8,599.18.
Broader stock indicators also lost ground. The Standard & Poor's 500 index fell 19.38, or 2.13 percent, to 890.35, and the Nasdaq composite index fell 45.42, or 2.81 percent, to 1,571.59.
The Russell 2000 index of smaller companies dropped 20.71, or 4.13 percent, to 481.30.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume came to a light 1.16 billion shares.
For the week, the Dow fell 4.8 percent, the S&P 500 slid 4.5 percent and the Nasdaq lost 3.7 percent.
Bond prices rose as investors sought safety following Friday's grim economic data. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.36 percent from 2.44 percent late Thursday. The yield on the three-month T-bill, considered one of the safest short-term investments, slipped to 0.07 percent from 0.08 percent compared with late Thursday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude fell 87 cents to settle at $40.83 on the New York Mercantile Exchange after dipping as low as $39.38.
In other economic data, the Commerce Department reported that businesses cut wholesale inventories for a third straight month in November, while sales continued to plunge. Wholesale inventories dropped 0.6 percent, and sales were down a record 7.1 percent.
Energy stocks were among the biggest decliners after oil fell. Occidental Petroleum Corp. fell $2.70, or 4.6 percent, to $56.30. Schlumberger Ltd. fell $2.83, or 6.2 percent, to $43 after announcing plans to cut about 5 percent of its work force due to the drop in oil prices. Oil is down from more than $147 a barrel in July, hurting demand for exploration and production services.
Citigroup Inc. fell 41 cents, or 5.7 percent, to $6.75 after board member Robert Rubin, the former U.S. Treasury secretary, resigned as a senior adviser to the big financial services company. The company said he will remain a director until his term expires at the next annual meeting in the spring. Rubin has drawn criticism for his role in the bank's recent problems that drove it to seek federal assistance.
The rise in unemployment also hurt consumer discretionary stocks like retailers. Target Corp. fell $2.12, or 5.7 percent, to $35.40, while Macy's Inc. fell 63 cents, or 5.8 percent, to $10.30.
Wall Street is also girding for dismal fourth-quarter earnings reports from companies starting next week.
"Everyone is expecting bad results," said Jim Swanson, chief investment strategist at MFS Investment Management in Boston. But he said Wall Street has also set expectations so low that results would have to be far worse than expected to startle the market.
"Anything that's not catastrophic will probably be greeted mildly or even a little bit positively," he said.
Overseas, Japan's Nikkei stock average fell 0.45 percent. Britain's FTSE 100 fell 1.26 percent, Germany's DAX index fell 1.97 percent, and France's CAC-40 fell 0.75 percent.