Merk Economics Release-Non-Farm Payrolls: August 2008

Non-Farm payrolls for the month of August 2008 declined -84K for the month. The major catalysts were the decline of -61K in the manufacturing sector, -57K in the goods producing sector and -27K in the service sector. Overall total private employment declined -101K for the month. The only major areas of the economy to see net growth in August was the education and health sector which hired 55K workers and the government expended its payrolls by 17K. Back revisions for the months of June and July saw an additional -58K added to the cumulative losses, bringing the three-month average to -81K.

The household sector declined by -342K, which resulted in a jump in the unemployment rate by 0.4% to 6.1% for the month. The unemployment rate in August is the highest since September of 2003. Over the past year the number of unemployed individuals has increased by 2.2 million, while the rate of unemployment has jumped by 1.4% with the majority of that increase occurring over the past 120 days. The number of long term unemployed, defined as those that have been out of work form 27 weeks or more, increased by 163K to 1.8 million, which represents an increase of nearly 600K over the past year. Recently unemployed individuals, defined as those that have been without work for less than five weeks increased 400K for the month.

The August payroll data supports the notion that the labor sector continues to be weak and the economy is slouching towards stagnation. The decline in the data was broad-based and implied that the toll extracted from the combination of the housing crises and the credit crunch has now reached the point that it will spill over to the greater economy. While the data does not support a call of a severe slump in output, it is sufficient to keep the Fed on hold for the foreseeable future. Of particular concern is the decline in the household survey and the sharp jump in the number of longer term unemployed over the past four months. The 1.4% increase in the rate of unemployment over the past 120 days poses an outsized risk to personal consumption throughout the remainder of the year. The rather gloomy picture painted by the household survey in August, should act as a catalyst for the Dow to retest lows seen in July 2008 during market hours today.

This report was prepared by Merk Investments LLC, and reflects the current opinion of the author. 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 a solicitation or an offer to buy or sell any investment product, nor provide investment advice. Merk Investments does not own any of the stocks mentioned; this is not an offer to buy or sell any security mentioned.

Merk Investments: Non-Farm Payrolls: August 2008