At the close of trade, the Dow Jones Industrial Average index declined 431.20 points, or 1.26%, to 33,696.85. The S&P500 index was down 57.16 points, or 1.38%, to 4,090.41. The tech-heavy Nasdaq Composite Index dropped by 214.76 points, or 1.78%, to 11,855.83.
All 11 sectors ended lower along with the S&P500 Index. Consumer discretionary was bottom performer sector, falling 2.15%, followed by information technology (down 1.75%), communication services (down 1.55%), and materials (down 1.15%) sectors.
The steep drop on Wall Street came following the release of a Labor Department report showing producer price index for final demand climbed by 0.7% in January after edging down by a revised 0.2% in December. The report also showed the annual rate of producer price growth slowed to 6.0% in January from 6.5% in December.
A separate Labor Department report showed first-time claims for U.S. unemployment benefits unexpectedly slipped to 194,000, a decrease of 1,000 from the previous week's revised level of 195,000.
The larger than expected increase to producer prices is unwelcome news to the Fed and reinforce the view that further policy tightening is needed to tame inflation. Meanwhile, the current level of jobless claims suggests labor market conditions remain exceptionally tight, leaving the Fed on track to raise rates at its March meeting, and probably at the May meeting too.
Investors will watch Fed officials for more hints on the central bank's rate-hiking campaign. Richmond Fed President Tom Barkin will be speaking about the labor market on Friday morning. Fed Governor Michelle Bowman is also taking part in a discussion at the Tennessee Bankers Association's credit conference.
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ECONOMIC NEWS: US Housing Starts Declines By 4.5% In January- A report released by the Commerce Department on Thursday showed new residential construction in the U.S. tumbled by much more than expected in the month of January. The Commerce Department said housing starts dove by 4.5% to an annual rate of 1.309 million in January after plunging by 3.4% to a revised rate of 1.371 million in December. The decrease came as single-family starts tumbled by 4.3% to an annual rate of 841,000, while multi-family permits plunged by 4.9% to an annual rate of 468,000.
Meanwhile, the report said building permits inched up by 0.1% to an annual rate of 1.339 million in January after falling by 1% to a revised rate of 1.337 million in December. Building permits, an indicator of future housing demand, were expected to jump by 1.5% to an annual rate of 1.350 million from the 1.330 million originally reported for the previous month. The uptick in building permits came as multi-family permits surged by 2.5% to an annual rate of 621,000, offsetting a 1.8% slump in single-family permits to a rate of 718,000.
US Producer Prices Rise 0.7% In January- Producer prices in the U.S. advanced by more than expected in the month of January, the Labor Department revealed in a report released on Thursday. The Labor Department said its producer price index for final demand climbed by 0.7% in January after edging down by a revised 0.2% in December.
The stronger than expected price growth largely reflected a substantial rebound in energy prices, which spiked by 5% in January after plummeting by 6.7% in December. The report also said prices for services rose by 0.4% for the second straight month. Meanwhile, the Labor Department said food prices continued to decline, slumping by 1% in January. Excluding prices for food, energy and trade services, producer prices climbed by 0.6% in January after edging up by 0.2% in December.
The report also showed the annual rate of producer price growth slowed to 6% in January from 6.5% in December.
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