Be Forewarded!

According to ContraryInvestor, every time over the last fifty (50) years that the year over year rate of change in the Leading Economic Indicators (LEI) dropped below 0.5%, either an outright "recession or a meaningful economic slowdown" has occurred. Wow! That is an excellent track record. By the way, the August 2006 LEI rate of change was 0.51%. I will definitely monitor the year over year rate of change for the LEI. The following chart, which is from the ContraryInvestor, illustrates the LEI for 2006 through August.

If one combines the track record of the LEI with the current negative to flat Yield Curve, a 2007 slowdown of significance definitely looms on the economic horizon. The probability will increase if the September 2006 LEI comes in under 0.50%, and the Yield Curve remains flat to negative.