The New Economy may still be in the can, but early data on third-quarter preannouncements show signs that the Old Economy is stirring back to life.

According to Prudential analyst Ed Keon, 2001 earnings estimates for nontechnology components of the

S&P 500 fell just 0.68% in August, while estimates for the S&P 500 overall dropped 1.2%. By comparison, estimates for nontech fell 1.2% in June and 1.5% in July, while forecasts on the S&P 500 declined 2% in June and 2% in July.

"If the low level of nontech preannouncements continues, it could mean earnings may be near a bottom and improvement could be closer than we have previously thought," Keon wrote in a report published late last week. "If earnings expectations hold, that could lead to a positive cycle for employment, economic growth and the equity market."

The final verdict isn't out yet because the bulk of third-quarter earnings warnings should be unleashed over the next several weeks. Earnings warnings for a particular quarter tend to be concentrated in the three weeks before the actual reports roll in.

"We should be alert for the possibility that nontech is turning, but we need to look for negative evidence," says Keon. "If we start getting a lot of big negative announcements out of the nontech companies, that would change things."

More Noise

Whether the Old Economy is actually turning has been a question of some debate in the past month. Some hints of recovery in the manufacturing sector have emerged in data on

industrial production and the

purchasing managers' index. Industrial production was unchanged in July, the first time in 10 months that it didn't decline. Capacity utilization data in that report also pointed to a turn in nontech. While the capacity utilization rate for tech companies dropped to an all-time low of 65.1% in July, nontech manufacturers' capacity utilization rate posted its first gain since last August.

And the August purchasing managers' index showed that 12 out of 20 manufacturing industries, including printing and publishing, lumber and food posted growth in new orders during the last month of the summer, something the National Association of Purchasing Management found "particularly encouraging."

But Friday's dismal

employment report told a different tale. The manufacturing sector was responsible for a surprising decrease in payrolls in August, according to the Labor Department. Some economists countered that the August decline really corresponds to layoffs announced several months ago, when the sector was under more pressure.

Even if the Old Economy is poised to turn, it's unlikely it will witness the rapid V-shaped recovery Wall Street was hoping for earlier this year. In April, investors were counting on recovery in the third or fourth quarter and a quick restoration to previous levels of growth.

"It's hard to believe in V-shaped recovery even outside of tech," Keon said. "It's hard to imagine that we would go back to 4% to 5% growth, but we could get back to 2% to 3% growth for next year. We just need to have business spending to stop falling."

Take That

Some Old Economy sectors are definitely not looking up. After increasing their earnings forecasts on the energy sector for the past 26 months, analysts began to trim them by 1.3% a month in the past two months, according to Thomson Financial/First Call. With 10 negative preannouncements, energy sector warnings make up 24.4% of all warnings so far this quarter. Retailers are also falling behind. The consumer-services sector accounts for 24.7% of the negative announcements on the third quarter, concentrated in the retailing-goods universe.

In the meantime, warnings from technology companies continue to pile onto Wall Street. The short list of tech giants warning in the past few weeks includes

Sun Microsystems

(SUNW) - Get Report

,

Corning

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,

Novellus

(NVLS)

,

Manugistics

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and

Motorola

(MOT)

. Close to one-third of all preannouncements have so far come from the technology sector, with the majority of the warnings coming from chip and software companies, according to Thomson Financial/First Call. Thomson Financial expects tech will continue to dominate the warnings tally.

This wouldn't be the first time that tech lagged the rest of the economy in a recovery. In the early 1990's, following the last major economic downturn, profits and margins in the tech sector recovered two years after the rest of the economy did.