As explained in an earlier post, I am sceptical of US recession forecasts. One indicator I am monitoring closely is weekly initial claims for unemployment benefit. Claims always rise sharply at the onset of recessions – see chart. Indeed they usually start moving ahead of cyclical turning points, which is why they are included as a component of the Conference Board’s index of leading indicators.

Claims rose a bit during August but have since fallen back, with the latest figure the lowest since May. A five-week moving average is essentially unchanged from a year ago. Further evidence of labour market resilience comes from daily data on withheld income and employment taxes. Receipts per day so far in September are 7.7% up on a year ago – slightly above the 6.8% average increase over January-August.

So far so good.

Changes in equity analysts’ estimates are a good guide to corporate earnings momentum. September figures are reasonably encouraging – upgrades and downgrades across developed markets broadly balanced out.

The details show expected large downgrades among financial stocks, reflecting the “credit crunch”. However, there has been offsetting strength in other areas, including IT, telecommunications, materials and industrials.

As the chart shows, G7 industrial activity correlates with the world revisions ratio – upgrades minus downgrades divided by the total number of estimates. The ratio fell back in September but remains at a level consistent with economic expansion.

“Every dog has his day” – even the dismal Japanese stock market. The TOPIX index is again languishing at the bottom of league tables, having fallen 8% so far this year against an average rise of 7% in other major markets (as measured by the MSCI World ex Japan index). Four factors hint at better performance. First, the latest Ministry of Finance business survey was solid, suggesting the economy is bouncing back from early summer weakness – see chart. Second, corporate earnings continue to outpace expectations: analyst upgrades have outpaced downgrades in each of the last three months. Third, the liquidity backdrop has improved, with inflation-adjusted broad money recently growing faster than industrial output, having lagged in 2006. Finally, investor sentiment is depressed – arguably a precondition of a turnaround. According to Merrill Lynch’s global fund manager survey, pessimists on Japan now outnumber optimists for the first time since 2003.