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

The August Employment Report was horrible. Nonfarm payrolls fell by 84,000, not far from the median forecast (-75,000). However, payrolls for June and July were revised a net 58,000 lower. Moreover, the unemployment rate jumped to 6.1% (vs. 5.7% in July and 4.7% year ago). The unemployment rate for those aged 25 years and over rose to 4.9% (vs. 4.4% in July and 3.6% a year ago). Declines in nonfarm payrolls were relatively widespread. Construction (down 8,000) posted a more modest decline, perhaps a signal that we're approaching a bottom in housing. Manufacturing shed 61,000 jobs, more than half (39,000) in motor vehicles. Job losses continued in wholesale and retail trade (down 10,500 and 19,900, respectively). Average weekly earnings rose 0.4%, up 3.3% from a year ago (in comparison, the CPI rose 5.6% in the 12 months ending in July).

Prior to the Employment Report, the stock market fell sharply on worries about global economic growth. Falling commodity prices were seen less as a hopeful sign of relief for the consumer than as an ominous indication of weakening global demand. Fed officials suggested that the current 2% Fed funds target rate was not “particularly accommodative,” perhaps paving the way for a possible rate cut in the months ahead (the weak jobs data would reinforce that view).

Next week, the economic calendar is thin until Thursday. Import prices and the Producer Price Index should reflect lower petroleum prices in August (although the PPI’s seasonal adjustment will be looking for lower gasoline prices). The trade deficit is expected to have been little changed in July. Retail sales should be mixed in August – generous incentives helped salvage sales of light trucks late in the month, but chain store sales were mixed and generally lackluster. The market should begin to focus ahead to the September 16 Fed policy meeting (no change in rates is anticipated, but there could be something different in the wording of the policy statement).

Indices

	Last	Last Week	YTD return %
DJIA	11188.23	11715.18	-15.65%
NASDAQ	2259.04	2411.64	-14.83%
S&P 500	1236.83	1300.68	-15.77%
MSCI EAFE	1723.52	1800.63	-23.51%
Russell 2000	718.62	744.13	-6.19%

Consumer Money Rates

	Last	1-year ago
Prime Rate	5.00	8.25
Fed Funds	2.00	5.25
30-year mortgage	6.14	6.12

Currencies

	Last	1-year ago
Dollars per British Pound	1.769	2.013
Dollars per Euro	1.433	1.369
Japanese Yen per Dollar	107.08	116.33
Canadian Dollars per Dollar	1.070	1.049
Mexican Peso per Dollar	10.52	11.06

Commodities

	Last	1-year ago
Crude Oil	107.89	75.05
Gold	796.45	681.80

Bond Rates

	Last	1-month ago
2-year treasury	2.14	2.42
10-year treasury	3.58	3.91
10-year municipal (TEY)	5.75	5.92

Treasury Yield Curve – 9/5/2008

S&P Sector Performance Charts – 9/5/2008

Economic Calendar

September 11	—	Jobless Claims (week ending August 6) Import Prices (August) Trade Balance (July)
September 12	—	Producer Price Index (August) Retail Sales (August) Consumer Sentiment (mid-September)
September 16	—	Consumer Price Index (August) FOMC meeting
November 4	—	Election Day