"The profile for building approvals confirms that 2006 will be a weaker year for residential construction," Mr Dale said.

"The orderly pull-back in building activity which began in 2005 is set to continue this year.

"Building approvals are close to bottoming, they haven't tanked along the way, and there is still around $13 billion worth of new building work in the pipeline.

"So 2006 will be a softer year, but not a savage year."

But he said with stable interest rates and tight rental markets, demand for new housing would continue to build.

"So we would expect to see the market find a base by the end of the year," he said.

Master Builders Australia chief economist Peter Jones said the December fall had almost completely offset the rise in November.

"We are seeing a continuation of a sawtooth pattern as dwelling approvals struggle to bottom out after what has been to date a mild downturn in housing," Mr Jones said.

He said the key factor in today's figures was a fall in Victorian approvals linked to strict new environmental regulations introduced last year.

Victoria's total dwelling unit approvals were down 16.4 per cent, as private sector houses fell 10.1 per cent.

Queensland also suffered with total dwelling unit approvals down 6.5 per cent and private sector houses falling two per cent.

RBC Capital Markets senior economist Michael Every said the figures had implications for the housing market and interest rates.

"Clearly the residential housing market is well off its peak now," Mr Every said.

"The RBA (Reserve Bank of Australia) remains on hold for now with domestic demand moderating.

"A further softening and/or a downturn in external demand should see lower rates later in 2006."

The Reserve Bank is due to meet on interest rates in Sydney next week.

The estimate of the value of total building approved fell 6.8 per cent, to $4.6 billion, while the value of new residential building approved fell 1.2 per cent, to $2.427 billion.

The value of alterations and additions fell 8.4 per cent to $412.9 million.

The seasonally adjusted figure for total dwelling units approved in NSW was up 6.2 per cent, while private sector houses fell two per cent over the month.

South Australia's total dwelling unit approvals fell 2.5 per cent, as private sector houses dropped 1.6 per cent.

Total dwelling unit approvals for Western Australia rose 1.4 per cent and private sector houses rose 1.7 per cent.

Tasmania's total dwelling unit approvals rose 1.6 per cent over the month, seasonally adjusted.

There were a record 4873 cases lodged in the NSW Supreme Court's Possessions List in 2005 - a 59 per cent rise on 2004, and more than double the number of cases in 2003.

This compares with 3287 cases in 1991 as the economy recovered from deep recession.

The Possession List refers to cases of legal action by lenders against borrowers who default on mortgages secured by land. This includes investment properties, commercial properties and residential properties.

Young investors defaulting on home loans was one factor behind a surge in legal action against borrowers last year, a court spokesman said.

Sydney property prices peaked in the second half of 2003 but have fallen nine to 10 per cent since then. Reserve Bank figures show Sydney house prices fell 4.3 per cent in the year to September.

Futures markets immediately began pricing in further interest-rate rises by the Federal Reserve to try to keep inflation pressures bottled up.

Bond prices fell as did stocks but the dollar's value increased.

The labor market has shown particular signs of strength in recent months but, over the course of the full year 2005, produced fewer jobs than had been thought a month ago. Job growth totaled 1.98 million during 2005, some 43,000 fewer than previously thought once the department's annual benchmark revisions of the data were applied.

Economists had forecast 240,000 new jobs would be created in January and that the unemployment rate would be unchanged at 4.9 percent.

RATES HEADED UP

The low unemployment rate caught the attention of financial markets and reinforced opinion that interest rates were likely to go higher. "Those who said the Fed has only one or no more increases coming are going to revise their opinions," predicted economist Stanley Nabi of Silvercrest Asset Management in New York.

The U.S. central bank has raised its trend-setting federal funds rate 14 times since mid-2004 in quarter-point increments, most recently on Tuesday when it hiked the rate to 4.5 percent. The low unemployment rate is likely to heighten its concerns about tight labor markets.

"It (the jobless rate) is probably at or slightly below the level the Fed is thinking is full employment, so it will strengthen their resolve to lean against inflation pressures," said economist Elisabeth Denison of Dresdner Kleinwort Wasserstein in New York. "We expect another quarter-point hike in March."

Average hourly earnings rose to $16.41 in January from $16.34 in December. In the 12 months through January, earnings have risen by 3.3 percent, the largest for any 12-month period in nearly three years, since February 2003.

"These are the kinds of things that raise eyebrows at the Fed," said economist Cary Leahey of Decision Economics in New York. "The implication that this January report has for wage inflation is bothersome to the market and the Fed."

Previously, the department said 108,000 jobs were created in December but it pushed that up to 140,000 and it said that, in November, 354,000 jobs were created rather than the 305,000 it reported a month ago.

"Overall, (Maytag's) competitive position right now is pretty weak," said David MacGregor, an analyst with Longbow Research.

The Newton, Iowa, company, which also makes Amana and Jenn-Air appliances, said its fourth-quarter loss widened to $75 million, or 93 cents a share, from a loss of $14 million, or 18 cents a share, a year earlier.

Excluding restructuring charges and other one-time items, the loss was 31 cents a share, much deeper than the 13 cents expected by analysts polled by Reuters Estimates.

Fourth-quarter sales rose 6.6 percent to $1.24 billion. Higher sales of refrigerators, stoves and washers offset a 1 percent decline in sales of commercial products, which include Dixie-Narco vending machines and the Jade commercial appliance line.

Maytag said Hoover sales were down significantly due to price erosion and continued consumer migration to other brands. Hoover has been a major contributor to Maytag's troubles.

The appliance maker, which is closing some plants and scaling back production at others, said it expects to "evaluate alternative strategies for our floor-care product line and commercial businesses, including their possible sale."

The company agreed last year to be acquired by Whirlpool for $21 a share in cash and stock, or nearly $1.7 billion. Maytag shareholders approved the deal by a wide margin, but the transaction must still be cleared by U.S. Justice Department.

The companies expect the deal to close as early as this quarter.

On Thursday, Whirlpool reported a 30 percent rise in fourth-quarter profit and gave a 2006 earnings forecast that was well ahead of analysts' estimates.

"The USFIG remains below October's five-and-a-half-year high," the report said, adding that the slight rise was partially offset by a "disinflationary move in a measure of loans." It did not further explain this measure.

October's reading was 124.7.

The index's annualized growth rate, which smoothes out monthly fluctuations, rose to 3.9 percent from an upwardly revised 1.7 percent in December.

"However, in the light of its latest uptick, it is too soon to declare that a cyclical downswing in underlying inflation pressures has already begun," said Lakshman Achuthan, managing director for ECRI.

Despite a weaker-than-expected January payrolls number of 193,000, December payrolls were revised upward to 140,000 jobs from 108,000 earlier. The unemployment rate fell to 4.7 percent last month, its lowest level since July 2001.

The Dow Jones industrial average was down 45.79 points, or 0.42 percent, at 10,806.19. The Standard & Poor's 500 Index was down 7.76 points, or 0.61 percent, at 1,263.08. The Nasdaq Composite Index was down 17.71 points, or 0.78 percent, at 2,263.86.

On Tuesday, the Federal Reserve lifted the benchmark rate to 4.50 percent and hinted more rate hikes might be needed. Analysts on Friday, said the latest job report makes more rate hikes an almost-certainty.

"The report showed the economy is quite strong and employment costs are rising and that's what the Fed is going to be concerned about," said Edgar Peters, chief investment officer of PanAgora Asset Management said.

"It's much more likely now I think that the Fed will raise the fed funds rate to at least 5 percent," he said.

The prospect of higher interest rates hurt shares of banks and financial companies like Dow component JPMorgan Chase & Co., which was off about 1 percent to $39.59 and Fannie Mae, which fell 2.3 percent to $56.

Tech stocks were also down, as higher borrowing costs could hurt their ability to grow quickly and an earnings miss from online retailer Amazon.com Inc. Amazon.com shares tumbled 11.4 percent to $37.88.

Shares of appliance maker Maytag Corp., which is being bought by Whirlpool Corp., reported a larger fourth-quarter loss on Friday, sending shares down 3.3 percent to $17.43.

The oil sector was also weaker, pressured by a decline in crude oil prices over the last few days. U.S. lead-month crude oil futures were at $64.80 a barrel on Friday. Shares of Marathon Oil fell 2.6 percent to $71.26 after Sanford C. Bernstein cut its rating on the stock.

In other economic news, the University of Michigan consumer sentiment index worsened in January, while another report showed December factory orders rose 1.1 percent.

About $70 billion of the new war money will be requested for operations in Iraq and Afghanistan this year, bringing total spending on the two campaigns to $120 billion for the current budget year. The other $50 billion in new war money will be set aside in the 2007 budget for the first few months of the fiscal year that begins Oct. 1. More money will likely be needed in 2007.

The bulk of the funding will go toward military operations, officials said, but the money will also replace damaged, destroyed or worn out equipment. Another part of the request would provide aid to train Iraqi security forces and otherwise combat the insurgency in Iraq.

The Congressional Budget Office has estimated that $320 billion has been spent on Iraq and Afghanistan since the attacks of Sept. 11, 2001, including $50 billion that Congress sent Bush in December.

Administration officials said the new figures were estimates and the totals could change slightly before they are officially presented to Congress.

Bryan Whitman, a Pentagon spokesman, said the requests reflect the president's desire to "commit the resources that are necessary to fight and win the war on terrorism."

The requested money would cover troop salaries and benefits, repairing and replacing equipment, supporting U.S. embassies in the two countries and taking on the insurgency. It would cover the costs of continuing to train Iraqi and Afghan security forces and to protect U.S. troops.

Joel Kaplan, deputy director of the Office of Management and Budget, said the $50 billion request for Iraq and Afghanistan for 2007 is a placeholder. He suggested the combined costs of the two campaigns could be different.

"We're still in the process of working out the details," Kaplan said.

According to senior Pentagon officials and documents obtained Thursday by The Associated Press, next week Bush will request a $439.3 billion Defense Department budget for 2007, a nearly 5 percent increase over this year. That request does not include the $50 billion request for Iraq and Afghanistan.

Meantime, Donald Powell, the coordinator for rebuilding the Gulf Coast, confirmed that the administration would request $18 billion for that effort.

The money would push the total federal commitment for rebuilding the hurricane ravaged coast to more than $100 billion, according to administration tallies. That reflects about $68 billion in emergency appropriations, $18.5 billion in available flood insurance funds and the latest $18 billion figure.

The upcoming request is likely to create tensions between Gulf Coast lawmakers pressing to add to it and conservatives insisting that is be at least partially paid for with spending cuts elsewhere in the federal budget.

Powell said it probably would be the last such spending request for the current budget year and that next year's budget would not contain Katrina relief funds. He said a detailed request would go to Congress within 30 days.

Powell said he does not anticipate additional money for the region in the 2007 budget Bush plans to announce Monday.

Powell provided little detail about specifically what the money would be used for, saying it would include money for housing, roads and levees.

"That's a lot of money," he said, referring to the $100 billion.

Gulf Coast lawmakers, as they did in December, are likely to try to add on to the request and push for more aid for flood control and housing.

"We certainly welcome additional federal assistance,'' said Sen. Mary Landrieu, D-La. "But I am highly concerned that the administration's proposal, which lacks details, will put more money into dysfunctional federal bureaucracies like FEMA and won't adequately address urgent needs such as housing, levees and flood protection."

In December, Congress dedicated $29 billion of previously appropriated funds for such purposes as levee repair and construction, emergency funds to compensate homeowners whose hurricane insurance does not cover flood losses, and child care, mental health and other social services.

At that time, Congress exceeded Bush's request by $10.4 billion, mostly by approving $11.5 billion in flexible Community Development Block Grants.

The latest request is also likely to include funding for federal facilities such as military bases and veterans hospitals damaged by the September storm. Congress failed to fully fund several comparable requests last year.

For the past five years, America has been led by a president who is clearly not up to the job — a man who is not just inarticulate, but lacking in judgment, intelligence, integrity, charisma or staying power. Yet America as a nation seems to be stronger, more prosperous and self-confident than ever.

As the State of the Union address made clear, President Bush has more or less given up on all the grand goals that were supposed to define his presidency: social security reform, peace in the Middle East, even the axis of evil doctrine, which was supposed to disarm North Korea and Iran. Most embarrassingly, President Bush seems to have given up on capturing Osama bin Laden or bringing to justice the perpetrators of 9/11.

But now comes the paradox. While America has been run by one of the most doltishly ineffectual governments in history, it has forged ever further ahead of Europe in terms of wealth, science, technology, artistic creativity and cultural dominance.

Why does America’s prosperity and self-confidence seem to bear so little relationship to the competence of its government? The obvious answer is that America, founded on a libertarian theory of minimal government, has always had low expectations of politicians. In America, it is not just business that thrives independently of government, perhaps even in spite of government. The same is also true of other areas of excellence which in Britain are considered quintessentially in the public domain — higher education, leading-edge science, culture and academic research. Because Americans expect so little of their government, they are rarely disappointed. They do not slump into German-style angst when their governments fail to find solutions to the nation’s problems.

This anarchic spirit was summed up by Ronald Reagan: “The ten most dangerous words in the English language are ‘I’m from the government and I’m here to help you’.” In Europe, by contrast, the public expect government to solve all problems, and the media try to hold politicians accountable for everything. The result is a culture of dependency that extends far beyond the welfare state, to business and to the worlds of education, medicine, arts and science.

The American approach has a powerful advantage rooted in human nature: private sector activity is powered by economic incentives, while the State must operate by rules and sanctions. Since incentives, as Adam Smith observed, are much more likely to stimulate creativity and effort than sanctions, private enterprise tends to achieve ambitious objectives, while government often fails.

But while the weakness of US government may in some ways have helped to widen the gulf of achievement between America and Europe, there is another and opposite side to the story — which is where we must return to Mr Greenspan. American politicians may be incompetent and venal, even by European standards, but this is not true of the public realm as a whole. America has a host of public institutions, ranging from government bodies such as the Federal Reserve and the National Institutes of Health to charities such as the great universities, museums and hospitals, that are driven by a sense of public service that puts British and European bureaucracies to shame.

The American system recognises that a capitalist economy has areas of market failure where incentives alone will not produce socially desirable results. But American public institutions try to maximise private activity and incentives, rather than rein them in, within their realms — whether it is universities encouraging professors to start businesses, or health administrators creating incentives for drugs companies to do medical research. It is in this respect that Mr Greenspan most clearly represented the genius of the American system.

Mr Greenspan realised that his job at the Fed was not just to control inflation, the goal that other central bankers recognise. His real task, he explained last year, was “to achieve the maximum sustainable economic growth, with price stability pursued as a necessary condition to promote that goal”. Although a passionate advocate of small government, he realised that well-judged public intervention was necessary, not just to maintain stable prices but also to create the incentives for private enterprise to accelerate economic growth. He also understood that the best way to deal with the imbalances in the changing world economy was by supporting growth and allowing the greatest possible freedom for financial markets. Private investors, he believed, were more likely to find solutions to the complex challenges created by globalisation than central bankers or politicians.

But while Mr Greenspan believed that private incentives solve economic problems more successfully than government diktats, he also understood that capitalism works at its best if it operates in a sound, simple framework of ambitiously pro-growth monetary policy. His genius was to understand that public policy could be simultaneously minimalist and ambitious. In a sense, this is the genius of the American system. And this is why America does not need a genius in the White House.

In 1999, Alan Greenspan, who no longer needs any introduction, said during a Congressional hearing that "if we could find some means of predicting or deflating emerging bubbles, we would be much better off." A year later, the Internet bubble burst in the United States, rocking the rest of the world's markets.

The world recovered. But while Greenspan steps down Tuesday as head of the American central bank (the Fed), his detractors criticize him for allowing Americans to become dangerously accustomed to living in excess during his exceptional, 18-year-long mandate. However, the same assessment could be made outside the U.S. The property bubble in Spain, the debt bubble in the United Kingdom, the investment bubble in China, the stock market bubble in Australia, the global energy bubble: prices everywhere seem to have gotten out of control. This past summer, Andy Xie, economist for the Morgan Stanley bank, reckoned, "It's possible that the world economy is in the midst of the greatest bubble in history." And he estimated this price "swelling" to account for over 50% of gross domestic product!

Bubble analysts - it's a popular specialty nowadays - explain that it's conception dates back to the end of the last century. Two phenomena left their mark on the world in the 1990s. Firstly, the information technology revolution increased the productivity of the most developed economies; this is especially true for the United States. Then, the sudden influx onto the world economy of some 3 billion low-wage workers from Eastern Europe, China, and India, disrupted the job market's balance of power. The conjunction of these two events drove inflation down worldwide. Increased competition, spurred on by the Internet, reduced "pricing power," or the ability of company heads to independently fix prices - just as the ability of Western workers to negotiate higher salaries was also weakened.

In view of this evolution, the central banks, which hate nothing more than inflation, gave full vent to their good humor; in other words, they granted generous credit. In this way, the 1990s marked a break with the preceding decades: these liquidities did not engender inflation, which was weakened for structural reasons. They went toward further investments in foreign markets, whose prices soared. This first bubble having exploded a few years later, another rose to take its place: the property bubble, which has filled the pockets of so many Americans and Europeans. Along the way, it strengthened consumer morale and led to a spending frenzy, in both the United States and Great Britain.

Alan Greenspan can rightfully take pride in having offered his fellow Americans an unprecedented period of prosperity. During his long mandate, the United States experienced only two recessions, in 1991 and 2001. An impressive performance. But every rose has its thorn. Apparently certain that the Fed will always be there to ensure economic activity and preserve their capital, Americans no longer save. The notion of risk has practically disappeared from the markets. These past few months, even Greenspan has publicly expressed misgivings with regard to such blind optimism. No, continued stable economic growth is not a guarantee. Yes, we will eventually pay the price for taking too many risks. No, "it is simply unrealistic to depend upon the guardians of monetary policy to both identify speculative bubbles and initiate timely measures to fix price disorders," he warned last September.

For two years now, the Fed has tried to calm the situation by raising its own interest rates. But the bubble continues to swell, fed by the wealth it itself generates. In Great Britain, where the rate of personal debt has reached 157% of household income, economists have calculated that without taking into account the annual increase in private credit, economic growth would have been negative since 2002. In the United States, it would have been half as strong. There, property holdings represent around 160% of the gross domestic product, compared to 120% in the 1990s. The system which allows Americans to correlate their debt with the value of their house has effectively raised the national debt as property prices have increased, worsening the property bubble Â… In Australia, it's the Market which is currently overheated. Quoted shares were worth less than 40% of GDP between 1985 and 1995, but more than 120% today.

But who's concerned by these warning signs? Liquidities circulating around the globe have exploded, passing from 7.5% of world GDP ten years ago to 13% today. In other words, the world is overflowing with money it doesn't know where to invest. Suddenly, Chili and Malaysia are going into debt at a pace just slightly above the United States, and no one is saying a word. And if Standard & Poor's, a credit rating agency, is worried over the direction of European public accounts, its warnings have so far been unheeded by the markets. For them, there will always be someone willing to generously finance Greece and Italy - if not a European insurer, then China. Thanks to its profitable business with the United States, Beijing's foreign exchange reserves will rise above $1 trillion this year, five times the amount of just five years ago. Unless, that is, Asia grows tired of financing the West Â…

What do the bubble analysts think of all this? They say that if it explodes, it will happen when the world least expects it. They also say that certain bubbles deflate all by themselves. Carpe diem.