Housing Starts Up 0.4% in August : Trade Deficit Depresses Industrial Operating Rate to 79%

From Times Wire Services

Housing construction edged up a scant 0.4% in August, the first increase since April, the government reported Wednesday.

The Commerce Department said new homes and apartments were built at a seasonally adjusted annual rate of 1.82 million units in August.

In another report, the Federal Reserve Board reported that the operating rate of U.S. industry dropped to 79% in August, the lowest level since 1983, as factories continued to be plagued by the trade deficit.

Housing construction had fallen 2% in July after declines of 0.1% in June and a big 8.2% in May.

Despite this string of weaker numbers, construction for the year is running 8% ahead of last year as housing remains one of the brightest spots in a generally sluggish economy.

The strong housing market was triggered by steep declines in mortgage interest rates. Rates at the beginning of the year fell to the lowest levels of this decade, spurring a rush to buy homes as well as refinance existing mortgages.

Mortgages Below 10%

But when rates began creeping up in early spring, it put a damper on the boom.

However, rates have been falling again in recent weeks, with the nationwide average for 30-year, fixed-rate mortgages falling below 10% last month.

This renewed decrease in rates was credited with halting the construction decline. Analysts predicted that construction should show further strength in coming months.

The strength last month came from a 3% increase in construction of single-family units, which offset a 4.3% drop in construction of multifamily units. Single-family homes were built at an annual rate of 1.2 million units while multifamily units were built at a rate of 625,000 units.

By region, the biggest increase came in the Northeast, where construction jumped 17.7% to an annual rate of 333,000 units. Construction rose a smaller 2.3% in the West to 485,000 units while the South posted a tiny 0.3% increase to an annual rate of 708,000 units.

The Midwest was the only region to suffer a decline, a giant 15.9% drop to an annual rate of 296,000 units.

The Fed said the operating rate fell 0.1 percentage point last month, putting it 1.6 percentage points below its year-ago level.

American industry has suffered for more than two years from foreign competition that has robbed domestic manufacturers of sales. Added to that problem has been a steep slump this year in oil and gas exploration as petroleum companies cut back in the face of falling prices.

Continued Weakness

David Levy, economist at Levy Economic Forecasts of Chappaqua, N.Y., said the new report shows continued weakness in American industry, with the low operating rate the key reason that business investment spending is being reduced this year.

In a third report, the National Assn. of Business Economists said the economy should perform slightly better next year, but the gain will not be enough to make much of a dent in the unemployment rate.

Members of the association said they remained generally upbeat about 1987 despite the fact that sluggish growth so far this year forced them to scale back expectations for 1986. They said they expect the economy to show renewed vigor in 1987 with somewhat higher inflation rates, healthier corporate profits and only a slight jump in interest rates.

The survey of 300 economists at some of the country's largest corporations also found that they had pushed farther into the future the date of the next recession, with two-thirds expecting the current recovery will last at least into 1988.

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