May 2015: While the economic background appears to be little changed over the past two months, one important development has occurred and has not yet been noted in the financial press. During its most recent update of financial data, the Federal Reserve has downwardly revised its calculation of Leading Economic Indicators for the most recent five months covered. This downward revision is reflected in our chart above in the orange line. This puts us into caution territory for this one indicator, and has changed our probability of recession slightly upward. We will look for either confirmation or correction to the LEI's from the Fed and from the Conference Board before altering the status of the AP-LEI indicator downward to red or back to green. Conference Board LEIs are one month more current than the Fed values, so we can use their set to anticipate Fed values. Meanwhile, we do not expect the Fed to begin to raise rates yet, especially if they are paying attention to their own LEIs. Unemployment has taken another nice tic downward to 5.4%, on track with our year-end projection of 4.9% - 5.1%, assuming that the economy is undisturbed by any unusual events. The S&P500 remains in an upper bound tracking mode, staying about 70-100 points below the level where we would also indicate a caution in the AP-SI indicator. If the market moves above 2207 by June 1, then this indicator also will change away from green. Softer growth in equity earnings this season has pushed the PE of the S&P500 into uneasy territory, solidly above 20. We also monitor this for calculation of the AP-SI indicator.