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 Jim O'Sullivan of High Frequency Economics, who also won the
previous year based in part on confidence in the improving jobs
market, says there are few reasons to worry that the fall in
unemployment will halt soon or that a recession is near.
His conviction stems from one of the most reliable economic
indicators, jobless claims, which is an actual tally of people
claiming benefits, not data derived from surveys.
The jobless claims figures have been broadly consistent, he says,
and when averaged out, provide a very good guide to the trend in
non-farm payroll employment data, which always get the most
attention each month from financial markets.
Several times last year, particularly after a disastrous first
quarter when there was originally no economic growth reported at
all, O'Sullivan said he held his nerve while many others worried the
economy was turning down.
"There was a question of how much of it was weather, but hey, maybe
not all of it was weather -- and then you got the March and April
employment reports which seemed to imply that hey, things are really
slowing," O'Sullivan said.
"But claims were saying no, don't worry, don't panic, don't
extrapolate. And sure enough, payrolls roared back in May and GDP
bounced back in Q2."
After touching a four-decade low, initial weekly jobless claims have
edged up, averaging 270,000 in the fourth quarter of 2015. The
recent rises -- the latest was 285,000 -- do not signal a change in
the trend, O'Sullivan said.
This suggests the jobless rate will fall further, and at some point
soon, it will start to push up more significantly on already-rising
wage inflation.
O'Sullivan warns not to take the disappointing 0.7 percent
annualized growth rate reported for the fourth quarter as a leading
indicator of where the economy is headed, especially with more than
an average 200,000 jobs created each month.
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"The employment numbers are telling the right signal. Don't
extrapolate a weak GDP number just as you shouldn't have in the
first quarter of last year," he said.
Monthly payroll growth would need to fall below 100,000 to stop the
downtrend in unemployment, according to O'Sullivan.
"And again, that will happen at some point of course, but I just
don't see it happening right now."
His biggest assumption, however, is that financial markets will find
their footing after a terrible start to the year. That is by no
means guaranteed.
High Frequency Economics topped a list of 60 forecasters in the U.S.
that were graded by StarMine for accuracy on a set of key monthly
data releases in 2015, including GDP, inflation, consumer
confidence, unemployment rate, as well as the purchasing managers'
surveys of business activity.
(Reporting by Ross Finley Editing by Jeremy Gaunt)
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