Industrial Output Up a Modest 0.3% : Apartment-Building Boom Boosts Housing Starts 16% in Month

The nation’s economy displayed moderate growth in March as industrial output rose 0.3% and housing starts surged 16.3%, government agencies reported Tuesday.

Many economists believe that the latest figures confirm that, while businesses are doing well during the third year of the current economic recovery, the spurt of growth that persisted through 1983 and 1984 is over.

“We have reached a plateau,” said Kurt Karl of Wharton Econometrics, a forecasting and consulting firm in Philadelphia. “There are definite areas of weaknesses in the economy,” with the industrial sector suffering from strong import competition.

Industrial output was 2.9% greater in March than in the same month of the previous year, although it still lagged below the peak reached in August of last year. The Federal Reserve Board said last month’s gain of 0.3% reversed a decline in February of 0.2%, a revision from an initial estimate of a 0.5% decline that month.

Auto Output Up Slightly

Automobile production rose slightly in March, but the output of consumer goods was virtually unchanged. Overall output for the nation’s factories, mines and utilities rose because some materials, notably steel, paper and chemicals, were produced in greater abundance.

Economists say the strong dollar, which has substantial buying power on foreign markets, is a major drag on U.S. industrial production because it makes imported goods cheaper for American consumers.

“The dollar is plenty strong enough so that the foreign share of domestic markets will grow and expand,” said David A. Levy, senior economist at Levy Economic Forecasts in Chappaqua, N.Y. “That will continue to hurt domestic manufacturing. . . . The overall picture is that things are stagnating.”

Allan H. Meltzer, an economist at Carnegie-Mellon University, was more optimistic, arguing that the dollar will gradually decline in value as European economies begin to grow more vigorously. U.S. industrial output will improve, he said, as exports are stimulated and the growth of imports slows.

The 16.2% jump in housing starts, a sharp reversal from the 11.8% drop in February, was the biggest single monthly rise since a surge of 17.7% in May, 1983, the Commerce Department reported.

But experts warned that the surge is misleading. Most of it came from a 46% leap in construction of apartment houses, which are often financed by investors looking for tax breaks. New construction of single-family homes, which are less likely to be speculative ventures, increased a modest 2.3%.

“People are using a lot of tax incentives while they are available, and the expectation of tax change has created incentive for builders to do it now,” said Michael Sumichrast, chief economist for the National Assn. of Home Builders. Investors and builders fear that the tax reform program being developed by the Reagan Administration could cut deeply into the tax advantages enjoyed by real estate.

Slowest in West

The pace of new construction was slowest in the West, with housing starts rising only 3.3%.

The number of building permits issued, which provide a general guide to the level of confidence and likely future construction activity, rose 10.9% in March after a decline of 2.4% in February.

The latest data left the business outlook somewhat confusing, said William Buechner, a senior economist with the congressional Joint Economic Committee. “I don’t see anything to suggest that we are doing more than just drifting upward,” he said.

The economy is expanding, Buechner said, but at a much less robust pace than last year’s 6.8%. Many economists expect economic growth somewhat above 3% this year, high enough to absorb new workers entering the labor market but probably insufficient to make any substantial reductions in the unemployment level, now 7.2%.

But Meltzer said growth of 3.5% to 4% would constitute a “good performance for the third year of a recovery.”