Market Commentary
by Scott J. Brown, Ph.D., Chief Economist

The economic data remained weak. Nonfarm payrolls fell by 524,000 in December – about as expected, but not as bad as feared – while figures for the two previous months were revised lower by a net 154,000 (payrolls averaged a 510,000 monthly decline in the last three months of 2008). Payrolls fell by 2.6 million over the course of last year, with 1.9 million of that in the last four months alone. Job losses were widespread across all industries.

The unemployment rate jumped to 7.2%, from 6.8% in November and 4.9% a year earlier. The broadest measure of labor underutilization (which accounts for discouraged workers, those not included in the labor force but who would take a job if offered, and those working part-time but preferring full-time employment) surged to 13.5%, compared to 12.6% in November and 8.7% a year ago. Retailers reported disappointing results for December.

In the minutes of its December 15-16 policy meeting, the Federal Open Market Committee (FOMC) expressed much greater concern about the pace of economic weakness. The Federal Reserve discussed the benefits of purchasing “large quantities” of longer-term securities such as agency debt, agency mortgage-backed securities and Treasuries. During the week, the New York Fed began purchasing mortgage-backed securities (Fannie Mae, Freddie Mac and Ginnie Mae) and agency debt (Fannie, Freddie, and Federal Home Loan Bank).

Next week, there will be some interest in the economic data, especially the retail sales report. However, none of the figures is likely to alter the near-term economic picture, which remains bleak. Fed Chairman Ben Bernanke will provide some color on Fed policy. The bond market will close early on Friday ahead of the three-day weekend.

Indices

	Last	Last Week	YTD return %
DJIA	8742.46	8776.39	-0.39%
NASDAQ	1617.01	1577.03	2.54%
S&P 500	909.73	903.25	0.72%
MSCI EAFE	1270.93	1237.42	2.71%
Russell 2000	502.01	499.45	0.51%

Consumer Money Rates

	Last	1-year ago
Prime Rate	3.25	7.25
Fed Funds	0.25	4.25
30-year mortgage	5.13	5.55

Currencies

	Last	1-year ago
Dollars per British Pound	1.522	1.973
Dollars per Euro	1.370	1.471
Japanese Yen per Dollar	91.20	108.90
Canadian Dollars per Dollar	1.180	1.006
Mexican Peso per Dollar	13.68	10.93

Commodities

	Last	1-year ago
Crude Oil	41.70	96.33
Gold	857.40	878.00

Bond Rates

	Last	1-month ago
2-year treasury	1.21	0.79
10-year treasury	3.73	2.45
10-year municipal (TEY)	5.72	6.52

Treasury Yield Curve – 1/9/2009

S&P Sector Performance Charts – 1/9/2009

Economic Calendar

January 13	—	Ben Bernanke Speaks (“policy responses to the financial crisis”) Trade Balance (November)
January 14	—	Import Prices (December) Retail Sales (December) Fed Beige Book
January 15	—	Jobless Claims (week ending January 10) Producer Price Index (December)
January 16	—	Consumer Price Index (December) Real Weekly Earnings (December) Industrial Production (December) Consumer Sentiment (mid-January)
January 19	—	MLK, Jr. Holiday (markets closed)
January 20	—	Inauguration Day
January 27-28	—	FOMC Meeting