unemployment rate

Investors sent stocks sharply lower Friday after the U.S. unemployment rate shot above 7 percent -- a sign that Americans will be sticking to their tightened budgets for a while.

The Labor Department said employers cut 524,000 jobs in December, a smaller decline than economists' forecast for a loss of 550,000 jobs. 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.

"If you look at the number objectively, it's a bearish number. It's going to elicit some selling," said Nick Kalivas, vice president of financial research at the brokerage MF Global. "The unemployment rate at 7.2 percent is pretty ugly.

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.

MF Global's Kalivas said he believes investors will start buying back into the market, but slowly and cautiously. Bad economic data do not come as a shock to investors, but "there's nothing in the short-term that's going to give people real satisfaction," he said.
In late morning trading, the Dow Jones industrial average fell 99.00, or 1.13 percent, to 8,643.46.

Broader stock indicators also lost ground. The Standard & Poor's 500 index fell 13.41, or 1.47 percent, to 896.32, and the Nasdaq composite index fell 34.15, or 2.11 percent, to 1,582.86.

The Russell 2000 index of smaller companies dropped 14.65, or 2.92 percent, to 487.36.

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.

Bond prices rose after Friday's grim economic data. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.41 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.