US Employment Picture:
September Non-Farm Payrolls Preview

Joseph Brusuelas
Chief Economist
Merk Hard Currency Fund
Oct 2, 2008

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.

Oct 2, 2008
Joseph Brusuelas
Chief Economist
Merk Investments
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Joseph Brusuelas is Chief Economist at Merk Investments.

The Merk Hard Currency Fund is a fund that seeks to profit from a potential decline in the dollar. To learn more about the Fund, or to subscribe to our free newsletter, please visit www.merkfund.com.

The Merk Hard Currency Fund is a no-load mutual fund that invests in a basket of hard currencies from countries with strong monetary policies assembled to protect against the depreciation of the U.S. dollar relative to other currencies. The Fund may serve as a valuable diversification component as it seeks to protect against a decline in the dollar while potentially mitigating stock market, credit and interest risks-with the ease of investing in a mutual fund.

The Fund may be appropriate for you if you are pursuing a long-term goal with a hard 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 Fund and to download a prospectus, please visit www.merkfund.com.

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

The Fund primarily invests in foreign currencies and as such, changes in currency exchange rates will affect the value of what the Fund owns and the price of the Fund's 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 Fund is subject to interest rate risk which is the risk that debt securities in the Fund's portfolio will decline in value because of increases in market interest rates. As a non-diversified fund, the 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. The Fund may also invest in derivative securities which can be volatile and involve various types and degrees of risk. For a more complete discussion of these and other Fund risks please refer to the Fund's prospectus.

The views in this article were those of Joseph Brusuelas as of the newsletter's publication date and may not reflect his views at any time thereafter. These views and opinions should not be construed as investment advice nor considered as an offer to sell or a solicitation of an offer to buy shares of any securities mentioned herein.

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