FRANKLIN, N.H. -- John Keegan no longer spends much time with the newspapers. He said they make him sad. Read them too closely, he noted with a troubled shake of his white head, and "all you see are those damned notices."

The "notices" are advertisements for foreclosure sales. As New England's deepening recession rolls like a dark storm across the sullen beauty of central New Hampshire, those ads are piling up with alarming speed.

"I was here during the last Depression {in the 1930s}, and it sure looks like another one is on its way," said Keegan, 61, whose hardware store has been in his family since 1900. "The banks are barely holding on. The only reason people aren't packing up is 'cause there's nowhere for them to go. It's just about flattened us."

This is a season of financial despair across New England. No state has been spared job losses or a shrinking sense of self-esteem. Hartford has suffered through the death of a major department store, two hotels and several of its oldest restaurants. The "Massachusetts Miracle" long ago dissolved into bitter recriminations and red ink. But this flinty little state, with its carefully honed vision of itself as a rugged assemblage of canny individuals, has slipped into an economic free fall that may be unmatched in the nation -- although, at least as measured by statistics, New Hampshire today still is no worse off than the nation as a whole.

Two years ago, New Hampshire was adding workers faster than any state in the union. Today, it leads the country by far in number of welfare applicants. In 1987, the phone company and the electric utility here each added 20,000 new customers, huge figures for a state with a population of only 1.1 million. This year, each hopes to add 3,000 but expresses concern that the figure will be lower.

That such hard times could be far worse does not seem to matter. Over the past 15 years, the average income of New Hampshire residents has rocketed to more than $20,000, eighth highest in the country.

But restaurants stand empty from Manchester to the mountains. In a state with no income taxes and where the very idea of taxes seems almost too frightening to contemplate, city governments have had to slash already sparse services.

While people here and in Washington debate the intensity of the recession, its power and future course, nobody disputes the fact that it hit this state like a tidal wave.

Just two years ago, construction companies feeding on New Hampshire's unparalleled housing boom battled to rent bulldozers, cranes and other heavy machinery. Now U-Haul franchises have the longest waiting lists. At 6 percent, the unemployment rate has more than doubled in a year. Housing starts have plummeted from a 1986 high of 22,000 to fewer than 4,000.

"This state is in shock," said Michael Kitch, vice president for investor relations at New Hampshire Savings Bank. "We climbed so high and moved so fast. Forget about Massachusetts. For a decade, we were the true miracle. This is where Ronald Reagan refused to yield the microphone. It's where George Bush drew the line on taxes. It's the home of John Sununu. Suddenly, it all just evaporated."

New Hampshire's success throughout the 1980s seemed invincible. More than 122,000 newcomers moved here in the past decade, a growth rate exceeded among eastern states only by Florida. The initial burst was fueled, like most others in New England, by the Reagan administration's defense buildup and the remarkable rise of the Boston-based computer industry.

As prosperity spread north, people built summer homes and condominiums, sparking a secondary boom in construction, real estate, engineering, architecture, banking and other financial services. After years of mourning the death of old-line industries such as shoes, textiles and apparel, the good times seemed here to stay.

But the miracle was built on frail earth. The big computer companies, Wang Laboratories and Digital Equipment Corp. -- now the major employer in Massachusetts and New Hampshire -- bet their futures on microcomputers. But these have been eclipsed by the power and versatility of a new generation of personal computers.

The real estate boom flattened and took a nose dive. Many people who took equity loans backed by the new value of their homes were cut off at the knees. Thousands of them face payments they cannot meet, and bankers have been forced by federal regulators and their own shaky finances to call in the chips.

"It's not so much where we are right now but how we got here that has everyone so dazed," said Russell Thibeault, president of Applied Economic Research, a consulting firm based in Laconia. "The change happened too fast. It was like snapping a giant elastic band. Companies can't adjust that quickly, and the stress has been tremendous. In many ways, the psychological problems are greater than the economic burdens."

Indeed, a snapshot of the state's current economy would not begin to communicate the gloom statewide. High as it is, unemployment is no worse than the national average. Incomes are strong relative to most other places in the nation, and tourism has remained steady even during the past two years.

After New Hampshire's decade of ranking among the fastest growing, most dynamic states, most economists say it is not surprising that the past year has been so slow. But the abrupt halt to development and an abiding uncertainty about the direction of the state's growth have people spooked.

"Nobody is expanding, nobody is improving," said Henry Marcoux, who is in charge of purchasing and operations at Tom-Ray Office Supply in Manchester, the state's biggest furniture-supply outfit. "Sales are less than last year, and last year was worse than the year before. This business is a bellwether. You can see that everyone has the fear. The real problem is people just don't know what's next."

In the past, Yankee ingenuity rescued New England from economic rough spots. Some new idea -- computers, sophisticated electronics or specialized engineering -- has always come along to save the day. But many people here think that, with oil prices on the rise just as the autumn chill has swept in, more dark days are certainly ahead.

Optimists say that, once the huge housing surplus has been absorbed, normal growth will return. But that could take two years by most estimates. They cite new ventures, such as the rising arc of biotechnology investment, as possible growth centers for New Hampshire in the 1990s. But others are less cheerful.

"Recessions are always periods of major change in New Hampshire," said Laurence E. Goss Jr., project director for the engineering and consulting firm of Provan & Lorber in Contoocook. "The worst one we ever had was in 1975, and it helped wipe out all the old-line manufacturing industries. The low-wage jobs disappeared overnight. But computers and software design and defense electronics rode in to rescue us. I honestly don't know where that knight is going to come from this time."

Like others, he noted that the problems in this decade do not simply represent a shift from one era to the next. With the banking system teetering, construction near a standstill, defense spending facing long-term cutbacks and the computer industry increasingly based in California, the pillars of the boom are wobbling mightily.

Local politicians said this state's low taxes and small budget help to attract industry, but last year more than 25,000 construction workers and engineers fled, according to Applied Economic Research. For the first time in nearly two decades, moving companies are reporting more departures than arrivals.

The recession has forced residents of the Granite State to face another reality that, to many, seems harsher than anything else. The engine of their economy is located in Massachusetts.

For years, this state has defined itself as the opposite of its big-spending, high-taxing, liberal southern neighbor. But as the problems of Massachusetts -- budget deficits, loss of high-technology jobs, a massive real estate crisis -- become those of New Hampshire, people here no longer can brush aside the perceived recklessness of "Taxachusetts."

"There is nothing to gain in continuing the Hatfield and McCoy rivalry that exists between New Hampshire and Massachusetts," said Mark Bodi, executive director of the Granite Foundation, which seeks to promote business in the state. "They have helped create the world we live in now, and we need to acknowledge that."

Others put the painful truth more starkly.

"This state would be a national forest if it wasn't for Massachusetts," said Kitch, the banker. "The sooner we face up to that, the quicker we can get on with the future."