Market commentary

Non-Farm Payrolls dropped -131k for the month of July, exceeding the expectation of a decline in payrolls of -65k. Private Payrolls added +71k, slightly below expectations of +90k, while government payrolls dropped -202k which reflects a loss of census workers and, more importantly, an apparently larger-than-expected loss in state and local positions. Confirming earlier economic reports that showed the depth of the recession was deeper than originally believed, prior payroll reports were revised sharply lower. Overall payrolls in June were revised lower -96k, -52k lower in private and -44k for government payrolls.

This sets the stage for next week’s FOMC one day meeting and subsequent policy announcement. The Fed is deeply concerned the specter of deflation is rising. No job growth creates less demand for goods and services, and less demand usually equates to falling prices.

In reaction to this morning’s data, bonds are rallying with mortgage prices improved from Thursday by approximately .25%, and the U.S. equity markets are in sell mode.