The Texas job-creation machine may have broken down at the end of the year as the state economy continued to weaken and recovery seemed more distant than ever, according to a Federal Reserve report released Wednesday.

"The labor market remained weak as most contacts reported that they had maintained or reduced employment since the last survey," according to the "Beige Book" report about the Fed's Dallas district.

"I think Texas is finally entering the national recession," said Bernard Weinstein, a University of North Texas economist. "There's no place to hide."

The Dallas report, echoing gloomy dispatches from other Fed districts around the country, described mounting weakness throughout the economy, from manufacturing to commercial real estate to energy. That added a regional dimension to another day of grim news about the U.S. economy as a whole, which is already in its second year of recession.

At the national level, stocks tumbled Wednesday amid more upheaval in the banking sector, plus dire retail data that spotlighted the economy's increasing weakness. The Dow Jones industrial average posted its sixth straight loss, falling 248 points.

Retail sales, a key barometer of economic health, fell 2.7 percent from November to December, according to advance estimates released Wednesday by the U.S. Department of Commerce. Sales for 2008 as a whole fell 0.1 percent, the first annual loss since comparable records began in 1992.

The recession also claimed its latest corporate victim Wednesday, as Canadian giant Nortel Networks Corp. filed for bankruptcy protection. The company employs about 3,000 people in Richardson.

Hitting a wall

The U.S. economy lost jobs every month last year, shedding more than half a million jobs in both November and December.

By contrast, Texas added jobs in every month but one between January and November last year. The Texas Workforce Commission is scheduled to release December jobs data for the state on Jan. 23.

State job creation may be waning, government officials and economists say. Texas Comptroller Susan Combs said Monday that the state could lose more than 110,000 nonfarm jobs in the first nine months of the year.

"It wouldn't surprise me if that number turns out to be larger," Weinstein said.

That would only be about 1 percent of the state's job base of about 10.7 million, he said. But it would signal harder times.

Meanwhile, some local businesses are feeling the squeeze, according to Dallas business consultant Greg Bustin, who leads an executive development group with more than two-dozen chief executives from local companies with annual revenue between $5 million and $100 million.

Many of the companies achieved record results in 2008, Bustin said. But some started feeling a slowdown at the end of the year.

"It felt like things were going really well, and at the end of October, some of them hit a wall," he said.

Weakness all over

Economic conditions in the Dallas district, which covers Texas and parts of Louisiana and New Mexico, continued to weaken from mid-November to the end of 2008, according to the Fed report.

The report is based on anecdotal information collected by Fed staff from business contacts and other sources on or before Jan. 5.

"Contacts across a broad range of industries noted reduced demand and uncertainty about the outlook," said the report, which pointed to weakness in nearly all areas surveyed.

• Retail: "Almost all retailers reported weak holiday sales," said the Dallas Beige Book. How weak? Even discount retailers felt the pain. In autos, "sales of domestic brands were especially weak in the Richmond [Va.] and Dallas districts," according to the national Beige Book report. But sales of used vehicles and repair services have increased a bit in the Dallas district.

• Real estate: Homes sales have dropped, and cancellations are so prevalent that in some cases they outpace sales. In addition, "Commercial real estate transactions – both leasing and investment – have ground to a halt," the Dallas report said.

• Services: Airlines, already facing weaker demand, said they expect even worse business in the next six months. Demand was also sluggish at staffing firms, and activity was "flat to slightly down" at accounting and legal firms. "Offsetting this has been an increase in litigation and bankruptcy services," said the Dallas report.

• Trade: Fed contacts in container cargo and intermodal trade reported "a sharp drop off in activity since the last survey due to declines in international trade volumes." That may presage a reverse for Texas, which saw its exports jump more than 16 percent during the first 11 months of 2008 from the same period in 2007.

• Lending: "Bank lending declined due to tighter credit and weaker loan demand," the Dallas report said.

With the economy weakening in Texas – and deteriorating further in the nation as a whole – recovery remains a long way off.

"Most respondents don't expect conditions to improve until the second half of 2009," said the Fed report for Dallas, "with a growing number of respondents now looking at early 2010."