By Mark Pender

NEW YORK (MNI) – A substantial slowing in new orders is the most
significant reading in the Institute For Supply Management’s
non-manufacturing report and reflects the high level of caution that
pervades the economy, according to survey chief Tony Nieves.

“New orders concern me more than anything, more than employment,
because of its strong drop. Everybody is holding back on spending. We’re
seeing it on the consumer side and on the business side,” Nieves said in
a phone interview with MNI.

New orders fell 4.3 points in August to 52.4 for the lowest level
of month-to-month growth in eight months. The 4.3 point decline is
similar in degree to the 4.1 point decline this April, a month preceding
the May and June drop in total business sales. The last time new orders
showed a steeper month-to-month negative change was the meltdown of
fourth quarter 2008.

“When the (ISM) manufacturing report came out on Wednesday, I got
phone calls and emails saying ‘This can’t be. Why is it so good? That’s
not what we’re experiencing.’ That’s why I think this non-manufacturing
report is truly reflective of what’s going on in the economy right now.”

For a leading indication on his report, Nieves looks to new orders
on the manufacturing side. Here he’s upbeat, describing slowing underway
as no worse than moderate with that index dipping only four tenths to
53.1.

Still, he does concede that new orders on both sides peaked at low
levels in this recovery and are slowing more abruptly than they did in
the last recovery. New orders on the non-manufacturing side peaked in
August 2003 at 66.9 compared to a March 2010 peak of 62.3, with the
March reading the only plus 60 reading so far this cycle. Back in 2003
through 2005, the new orders index held above 60 for 19 of 20 months.

Though many of the report’s readings are adjusted, Nieves
attributes some of August’s weakness to seasonal shut downs and
vacations. This makes him hopeful that business, specifically business
investment, will soon begin to pick up.

“In my circle, I’m hearing about a loosening up of capital
expenditures in the last quarter, and I think we’ll see even more of
this in 2011.”

Nieves sees this investment concentrated not in new structures but
in improvement of existing assets. “I’m hearing about cosmetic rehabs:
restaurants, hotels, textiles getting redone.”

** Market News International New York Newsroom 212-669-6430 **

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