Merk Market Outlook: US Employment Picture: September Non-Farm Payrolls Preview

By: Joseph Brusuelas | Thu, Oct 2, 2008
Print Email
  Merk Market Outlook provides the weekly perspective on the markets and the economy.

Don't miss an Outlook:
Sign up for our Newsletter

The Archive:
Read past Market Outlooks

The upcoming release of the September non-farm payrolls report by the Bureau of Labor Statistics will not provide much comfort to the market or the public. Our forecast implies that payrolls will decline -105K and that the rate of unemployment will increase to 6.2% for the month. The strike at Boeing and the displacement of workers in the Southeast due to the twin hurricanes that hit the area during the sampling period should send the headline estimate of job losses above the recent trend. The risk for the report is to the downside and we do expect that the rate of job destruction will increase in the coming months.

Thus far 650K jobs have been lost during the year. The troubles in the housing sector and the now yearlong crisis in the credit market have begun to spillover into the broader economy. We anticipate that autoworkers and individuals in the technology sector, especially those in the work in computers may see an increase in unemployment in September and in the coming months.

We base this forecast on the growing evidence that that weakness in the manufacturing and goods producing sector has spilled over into the once potent service sector. We anticipate that close to half of all losses will occur in the manufacturing sector with the service sector seeing a fourth straight month of declines, in addition the weakness in the goods producing sector. Outside of the positive contributions from the government and the healthcare sector, the labor picture is in the process of moving in a decisively negative direction.

The deterioration in the unemployment picture is equally bleak. The sharp jump in the rate of unemployment in August was characterized by an increase in the duration of unemployment of 27 weeks or longer. Over the past year the number of unemployed individuals has increased by 2.2 million, while the unemployment rate jumped 1.4% over that same period, 1.3% over the past six months and 0.4% in August alone. During the post war period, each time the rate of unemployment has increased by 1.0% during a twelve-month period the economy proved each time to be in recession. Based on the most recent data we have updated our forecast on the rate of unemployment to 6.9% by mid 2009.

Looking forward, the September jobs report will not capture the recent intensification of the credit market and the complete seizing up of the short-term market for money. Firms that rely on the credit markets to roll over short-term debt and meet bi-monthly payrolls may find it increasingly difficult to do so. If the current financial crisis turns into an economic event, the market should ready itself to observe a far sharper dislocation in the workforce than is currently assumed. Thus, if the credit markets remain frozen well into October, there is a definitive risk that culling of the labor force will pick up beyond our provisional expectation of losses through the end of the year in the job sector of up to 150k per month.



Joseph Brusuelas

Author: Joseph Brusuelas

Joseph Brusuelas
Chief Economist
VP Global Strategy
Merk Investments LLC

Bridging academic rigor and communications, Joe Brusuelas provides the Merk team with significant experience in advanced research and analysis of macro-economic factors, as well as in identifying how economic trends impact investors. As Chief Economist and Global Strategist, he is responsible for heading Merk research and analysis and communicating the Merk Perspective to the markets.

Mr. Brusuelas holds an M.A and a B.A. in Political Science from San Diego State and is a PhD candidate at the University of Southern California, Los Angeles.

Before joining Merk, Mr. Brusuelas was the chief US Economist at IDEAglobal in New York. Before that he spent 8 years in academia as a researcher and lecturer covering themes spanning macro- and microeconomics, money, banking and financial markets. In addition, he has worked at Citibank/Salomon Smith Barney, First Fidelity Bank and Great Western Investment Management.

Mr. Brusuelas lives in Connecticut with his wife and St. Bernard.

Merk Investments LLC is the manager of Merk Mutual Funds, including the Merk Asian Currency Fund and the Merk Hard Currency Fund. The Merk Asian Currency Fund invests in a basket of Asian currencies. Asian currencies the Fund may invest in include, but are not limited to, the currencies of China, Hong Kong, Japan, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.

The Merk Hard Currency Fund invests in a basket of hard currencies. Hard currencies are currencies backed by sound monetary policy; sound monetary policy focuses on price stability.

The Funds may be appropriate for you if you are pursuing a long-term goal with a hard or Asian currency component to your portfolio; are willing to tolerate the risks associated with investments in foreign currencies; or are looking for a way to potentially mitigate downside risk in or profit from a secular bear market. For more information on the Funds and to download a prospectus, please visit

Investors should consider the investment objectives, risks and charges and expenses of the Merk Funds carefully before investing. This and other information is in the prospectus, a copy of which may be obtained by visiting the Funds' website at or calling 866-MERK FUND. Please read the prospectus carefully before you invest.

The Funds primarily invest in foreign currencies and as such, changes in currency exchange rates will affect the value of what the Funds own and the price of the Funds' shares. Investing in foreign instruments bears a greater risk than investing in domestic instruments for reasons such as volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. The Funds are subject to interest rate risk which is the risk that debt securities in the Funds' portfolio will decline in value because of increases in market interest rates. The Funds may also invest in derivative securities which can be volatile and involve various types and degrees of risk. As a non-diversified fund, the Merk Hard Currency Fund will be subject to more investment risk and potential for volatility than a diversified fund because its portfolio may, at times, focus on a limited number of issuers. For a more complete discussion of these and other Fund risks please refer to the Funds' prospectuses.

This report was prepared by Merk Investments LLC, and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute investment advise nor a solicitation or an offer to buy or sell any products or services. Foreside Fund Services, LLC, distributor.

Copyright © 2008 Merk Investments LLC

All Images, XHTML Renderings, and Source Code Copyright ©