As some state and local governments grapple with dwindling income tax receipts, unemployment figures - due Friday - will weigh heavily on the Fed's decision making on interest rates at next week's meeting, and for the remainder of the year. The decline in income tax receipts can be partly attributed to the weakened labor sector, market observers and participants said yesterday.

Analysts expect the economy to shed an additional 72,000 non-farm payroll jobs in Friday's report and for the household unemployment rate to increase to 5.6% in July, according to the median estimate by IFR Markets. It would be the seventh consecutive monthly decline for non-farm payrolls. Observers also expect the Federal Reserve to hold the federal funds rate steady at 2.0%.

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