Wall Street Gets December Chill

The glow of a strong holiday week faded quickly Monday morning, as stocks crumbled on a glum manufacturing report and expectations that the enthusiastic open to the holiday shopping season will be short-lived. Even worse, the U.S. has been in a recession for nearly a year, according to the non-profit, non-partisan research organization in charge of formally declaring such a cycle.

The National Bureau of Economic Research said the U.S. began a recession in December 2007, when an expansion that began in November 2001 and lasted 73 months hit its peak. The bureau cited the unyielding decline in payroll employment since that month as a key factor in its formal determination of a recession.

According to the Institute for Supply Management, manufacturing activity contracted for the fourth consecutive month in November, while its prices index showed its lowest reading since 1949. Meanwhile, the Commerce Department said construction spending was down 1.2% in October, and fell 5.7% in the first 10 months of 2008.

The gloomy economic figures were compounded by fading optimism for the retail sector. A robust Black Friday provoked enthusiasm for the holiday season, but sales are not expected to continue at the brisk pace of the day after Thanksgiving, according to a report from the National Retail Federation. Exchange-traded funds that include retailers among their holdings were sharply lower as the broader market declined. The SPDR S&P Retail (nyse: XRT - news - people ) was down $1.14, or 6.2%, to $17.29; while the Consumer Discretionary Select Sector SPDR (nyse: XLY - news - people ) dropped $1.11, or 5.4%, to $19.38

Across Wall Street, stocks were just above their worst levels of the session at midday. All 30 Dow components were in the red, and the index lost 380 points, or 4.3%, to 8,449. The S&P 500-stock index was down 46 points, or 5.1%, to 850, and the Nasdaq dropped 81 points, or 5.3%, to 1,455. (See "December Brings A Dip For U.S. Stocks.")

Mentor (nyse: MNT - news - people ) was the big winner among the day's few gains, after Johnson & Johnson (nyse: JNJ - news - people ) agreed to acquire the maker of breast implants and other aesthetic medical products for $31.00 a share, or $1.1 billion, in cash. The bid represented a 1.3% premium with Mentor up $14.44, or 89.4%, to $30.59 Monday. Johnson & Johnson was down $1.77, or 3.0%, to $56.81.

The morning's weak economic data and the declaration of a recession had stock prices reeling. With equities on the decline, investors were pouring back into the perceived safety of fixed-income investments, pushing down yields on Treasury securities. The benchmark 10-year note was returning 2.82%, down from 2.96% Friday, and the two-year note yield fell to 0.92%, from 1.04%.