In the view of many analysts, the economy is now in a downward spiral, with each piece of negative news setting off the next. Falling housing prices have eroded the ability of homeowners to borrow against their property, threatening their ability to spend freely. Concerns about tightening consumer spending have prompted businesses to slow hiring, limiting wage increases and in turn applying the brakes anew to consumer spending.

But some economists think a recession may have begun in December. In the last two weeks, there have been signs that a substantial downturn may already be unfolding. The Labor Department reported a sharp slowdown in job creation in December. Retailers said that sales last month were extremely disappointing, capping the worst gain for a holiday season in five years. A widely watched index showed manufacturing slowing, despite a weak American dollar that has encouraged growth in exports. The construction of new homes has already fallen by some 40 percent since the peak in 2006. The sales of new homes have fallen even faster, suggesting that a large oversupply of places to live will continue to drag down prices.
Home prices have dropped by about 7 percent since the peak in 2006, but some experts suggest they could fall by another 15 to 20 percent before hitting bottom.