In another sign of sluggishness in the nation's economy, businesses in July slashed orders for manufactured goods and reduced inventories, the National Association of Purchasing Management said Wednesday. It was the first drop in the group's measurement of the manufacturing sector in three months and gave further weight to a belief the nation's economy may be slipping into a recession. A measurement of activity by chief purchasing executives at more than 300 industrial companies tumbled in July to its lowest rate since January, in its sharpest monthly decline since January 1984. ``It reflects a weakening manufacturing sector, so the cutting edge is getting dull,'' said Robert Brusca, chief economist for Nikko Securities International Inc. ``Businessmen are going to become even more cautious.'' The association's Purchasing Managers Index fell to 47.4 percent in July from 51.1 percent the previous month, ending three months of increases. A reading below 50 indicates the manufacturing economy generally is declining. The index, a composite of survey results on order levels, prices, inventory and other areas, had been below 50 for 11 straight months. It averaged 48.8 percent in the first seven months of 1990. July's reading was the lowest since 45.2 percent in January. The decline was the sharpest since the index fell about nine percentage points in early 1984, economists said. Orders from manufacturers tumbled to 46.2 percent from 54.9 percent in June. The rate was the lowest since January ``and will undoubtedly weaken, if not decrease the recent modest growth in production,'' the association said. The group's production index was above 50 for the sixth straight month, but fell to 52.1 percent from 53.9 percent. It was the lowest level in five months. Inventories declined for the 20th straight month, at a pace sharper than the previous month. The group's inventories index fell to 39.3 percent from 42.9 percent in June as purchasers cut the volume of July orders and used existing inventories. ``The sharp decline in new orders apparently caused purchasers to reduce the quantity of purchases and work off existing inventories,'' said Robert J. Bretz, chairman of the association's business survey committee. ``The weakness of new orders in July now casts a shadow over the previous expectations for continued growth in the economy in the third quarter,'' he said. Bond prices, which improve on news of economic softening, surged after the report was issued. The bellwether 30-year Treasury bond finished up more than $6.50 per $1,000 in face value, with its yield tumbling to 8.35 percent from 8.41 percent late Tuesday. Some economists play down the significance of the purchasing managers report because manufacturing accounts for only about 20 percent of economic activity. But others said manufacturing is a leading indicator of overall business activity, and that even the service sector has shown signs of weakness. ``I think it's telling us the economy is weak again and businesses are making an effort to reduce inventories,'' said Robert Chandross, chief economist with Lloyds Bank PLC in New York. In other segments, the report said export orders increased while imports declined for the third consecutive month. Prices for manufacturing products, which include metals, textiles, sulfur, lumber and fuels, held steady, indicating no movement in inflation. Employment decreased for the 17th straight month, at a slightly lesser rate than in June.
