The Nasdaq composite index tumbled 64.87 points to 1,946.51, and the Dow Jones industrial average was off 128.36 points, or 1 percent, to 9,766.45.
Retail sales in November fell 3.7 percent, the largest monthly drop since 1992, when the Commerce Department started keeping track. Analysts expected a dip of just 2.8 percent.
The number of initial jobless claims fell by 86,000 to 394,000 for the week ended Dec. 8, a Labor Department report said. But the number of workers remaining on jobless benefits for the week ended Dec. 1 rose 36,000 to 3.7 million, according to the report.
Economists said the news indicates that the worst may not be over for the U.S. economy. "We believe consumer spending will soften further in coming months as layoffs continue to take a toll," Merrill Lynch analyst Bruce Steinberg said.
Economic news, however, took a back seat to gloomy news out of the telecom sector. Equipment makers Lucent Technologies and Ciena set the tone Thursday; both warned of larger-than-expected losses because of an ongoing slump in the industry. The news sent the CNET telecom equipment and networking indexes sharply lower.
Lucent fell $1.21, or 16 percent, to $6.52 after it said Thursday its first-quarter loss from continuing operations would be between 23 cents and 26 cents per share, much steeper than the loss of 17 cents per share First Call had predicted. Lucent also said first-quarter revenue would fall to between $3.1 billion and $3.4 billion, from $4.8 billion in the fourth quarter of fiscal 2001.
However, management did say the current quarter should be the bottom of its downturn, and it predicted a return to profitability and positive cash flow in the current fiscal year.
Optical networking company Ciena also warned of future operating losses because of the uncertain telecommunications market. Shares plummeted $3.03, or 17 percent, to $14.94.
The company reported fourth-quarter results that were largely in line with estimates but said sales in the first quarter would fall 30 percent to 40 percent and that the revenue decline could lead to an operating loss for the year. For its fourth quarter, the company reported operating earnings of $17.1 million, or 5 cents a diluted share, in line with First Call's consensus estimate, but down from $41.9 million, or 14 cents a diluted share, last year.
CEO Gary Smith said Ciena plans to take advantage of the current market situation by pursuing a strategy of "sustained investment in its business," which could result in operating losses.
On a conference call after the release of its fourth-quarter figures, executives said the company expected to post a loss in the range of 8 cents to 12 cents per share in the first quarter. First Call had been predicting earnings of 5 cents a share.
The news weighed heavily on Cisco Systems, down $1.49, or 7 percent, to $19.01; JDS Uniphase, down $1.14, or 12 percent, to $19.01; and Juniper Networks, down $2.75, or 11 percent, to $21.18.
Qwest Communications International, down 30 cents to $11.80, added to the bad news. For the fourth quarter, the telecom and broadband communications company expects revenue of approximately $4.8 billion; First Call had predicted revenue of $5 billion. Qwest also said it plans to reduce its capital expenditures for 2002 and to cut another 7,000 jobs from its work force as it trims operations to match lower customer demand.
Outside of the telecom sector, bad news was also rampant.
Applied Materials announced Wednesday that it would cut about 1,700 jobs, or 10 percent of its work force, in its second round of cuts this year. Shares of the semiconductor-manufacturing equipment maker lost $3.79, or 8 percent, to $41.08.
CNET's chip equipment index fell almost 8 percent.
Macromedia shares tumbled $8.16, or 30 percent, to $19.01 after the Web design software company cut its outlook for the third quarter and said it no longer expects to post a profit by the end of its current fiscal year in March.
HotJobs was one of the few bright spots on Wall Street. Shares shot up $3.83, or 59 percent, to $10.30 on news that Yahoo has offered to buy the recruitment Web site for $436 million in cash and stock. The offer, which came after market close Wednesday, pits Yahoo in a bidding war against TMP Worldwide, which was in the process of merging with HotJobs.
"We believe it's a positive for HotJobs and should end the huge spread between HotJobs and TMP Worldwide," said Robertson Stephens analyst Brian S. Shipman.
As investors were preoccupied with a flood of tech news Thursday, several were also looking forward to quarterly reports from Oracle and Adobe Systems, due after the closing bell.
Software giant Oracle is expected to come in on target with First Call's consensus estimate for earnings of 10 cents a share, but that is not expected to impress Wall Street. Shares were down 43 cents to $14.67.
"We do not expect any bright spots in the quarter, but no surprises either, and we expect management to be cautious on guidance," UBS Warburg analyst Ken Carey said. "We remain cautious on the stock as we believe IBM and Microsoft are gaining market share at Oracle's expense in the database business."
First Call expects Adobe Systems, a maker of graphic design, publishing and imaging software for Web and print production, to post earnings of 21 cents a share. Shares lost $1.15, or 4 percent, to $30.63.
Staff and Reuters contributed to this report.