Last Saturday the Knight-Ridder news service released the results of a survey of 25 economists. The survey participants were asked to forecast the values for this week's economic indicators. It seems that the median estimate for the October change in the Composite Index of Leading Indicators [LEI] was +0.5%. Boy, were they wrong! It turns out that the survey result was correct on the magnitude of the change; but, missed the direction.

Today The Conference Board and the Commerce Department announced that the October change in the LEI was, in fact, -0.5%. This was the seventh decline in the past nine months.

Seven of the eleven indicators that make up the LEI were down during October. From the largest negative contributor to the smallest, these were: change in sensitive materials prices, average workweek, money supply, contracts and orders for plant and equipment, average weekly initial claims for state unemployment insurance, vendor performance (time required for delivering orders), and building permits.

The sensitive materials price change made the largest contribution to the drop in the October LEI. The sensitive materials list is made up of commodities that, in the past, have tended to move up or down in price ahead of movements in the general economy.

The month-to-month change in sensitive materials prices hit a high in November of 1994. Since then, the change has become progressively smaller each month. In August the reading dipped below zero to -.12%, in September it fell further to -.83%, and October's reading was -1.6% -- the sharpest fall in this indicator in more than 15 years.

If there are still any federal policy makers who doubt that inflation is under control, they need to take a look at the trend in the change of prices for sensitive materials over the past eleven months.

Byline: Lafferty (MF Merlin)