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

The economic data during the first few days of July were mixed, but generally consistent with weak economic growth. The June Employment Report was poor, with nonfarm payrolls falling by 62,000 – about as expected, but with a net downward revision of 52,000 to the two previous months.

Declines were relatively broad-based across a variety of industries. Manufacturing, construction, retail and temp-help remained weak. The unemployment rate held steady at 5.5%. The seasonal quirk that boosted the figure in May only partly unwound in June. The unemployment rates for teenagers and young adults declined, but remained high. The unemployment rate for those aged 25 years and older rose to 4.3%, compared to 4.1% in May and 3.9% in April. The Institute for Supply Management (ISM) surveys were mixed relative to expectations. The manufacturing survey results improved (but were still weak), while the nonmanufacturing survey data deteriorated. Both reports showed flat orders, faster declines in employment and rising input price pressures.

The European Central Bank (ECB) raised short-term interest rates by 25 basis points, “to prevent broadly based second-round effects and to counteract the increasing upside risks to price stability over the medium term.” In the post-meeting press conference, ECB President Jean-Claude Trichet gave no hint that rates would be raised further.

Next week, the economic calendar thins out. Federal Reserve Board Chairman Ben Bernanke will testify before the House Financial Services Committee, but not on the economy or monetary policy (his monetary policy testimony, typically in mid-July, has yet to be scheduled). The important data bunch up at the end of the week and have a global focus. Import price pressures have been increasing. The trade deficit, likely to have widened in May due to higher petroleum prices, has been trending higher in recent months, but has declined in inflation-adjusted terms – which adds to gross domestic product (GDP) growth. Oil prices will remain an important wildcard for the financial markets.

Indices

	Last	Last Week	YTD return %
DJIA	11215.51	11453.42	-13.59%
NASDAQ	2251.46	2321.37	-14.50%
S&P 500	1261.52	1283.15	-12.70%
MSCI EAFE	1926.09	1968.45	-12.36%
Russell 2000	672.34	698.42	-11.97%

Consumer Money Rates

	Last	1-year ago
Prime Rate	5.00	8.25
Fed Funds	2.00	5.25
30-year mortgage	6.22	6.27

Currencies

	Last	1-year ago
Dollars per British Pound	1.983	2.016
Dollars per Euro	1.576	1.361
Japanese Yen per Dollar	106.45	122.40
Canadian Dollars per Dollar	1.019	1.060
Mexican Peso per Dollar	10.38	10.77

Commodities

	Last	1-year ago
Crude Oil	143.90	71.41
Gold	933.30	653.20

Bond Rates

	Last	1-month ago
2-year treasury	2.54	2.49
10-year treasury	3.97	4.00
10-year municipal (TEY)	5.76	6.09

Treasury Yield Curve – 7/3/2008

S&P Sector Performance Charts – 7/3/2008

Economic Calendar

July 10	—	Jobless Claims (week ending July 5) Bernanke Testimony (regulatory reform)
July 11	—	Import Prices (June) Trade Balance (May) Consumer Sentiment (mid-July)
August 5	—	FOMC meeting