Wall Street took a dive Friday after the Labor Department's monthly report on employment indicated almost no growth in December while unemployment rose to 5% from 4.7% in November. A rise in the unemployment rate of three-tenths of a percentage point or more has historically been considered a leading indicator of recession.

The Dow Jones Industrial Average closed down 1.96% at 12,800; the Nasdaq lost 3.77% and the S&P 500 was down 2.46%. The S&P XHB home building exchange traded fund lost 5.08% to $16.99, just 15 cents above its 52-week low.

Among the individual builder stocks, D.R. Horton led the losers with a drop of 10.12% to $10.92. Centex fell 9.60% to $20.91. Hovnanain dropped 9.15% to $5.86. Meritage was off 8.78% to $11.85. Ryland was down 8.73% to $22.16.Beazer dropped 8.31% to $6.29. KB, which reports its fourth-quarter earnings next week, lost 7.02% to $18.67. M/I, NVR, Toll and Pulte all fell in the mid 6% range, and the rest of the group was down between 5% and 6%. The best performer was Avatar, which was down only 0.78% to $36.82.

The street was reacting to a rapidly spreading belief that analysts will be cutting their earnings estimates sharply for the first quarter for most of the market. Economists on the street now consider the likelihood of a 25-basis point rate cut by the Federal Reserve a certainty, with many expecting a 50-basis point cut, perhaps in an emergency meeting prior to the Fed's scheduled gathering at the end of the month.

The street awaits data on same-store sales next Thursday, where it will look for evidence that consumer spending is holding up.