Home Building Slumps; Industrial Production Weak

Construction of new homes slumped for an eighth-straight month in September, the Commerce Department reported Wednesday, marking the longest slide in more than 30 years as activity ground to a recession-era pace.

Total starts on single-family homes and apartments fell 0.6% last month after a revised 1% fall in August, cutting starts to a seasonally adjusted annual rate of 1.135 million units from 1.142 million in August.

The last time that they were lower was more than eight years ago in August, 1982, when starts were at a rate of 1.046 million units. There have never previously been eight successive monthly drops in construction activity since the government started recording the statistics in 1959.

In another economic report, the Federal Reserve reported that industrial production rose a scant 0.2% in September, with a 7.5% spurt in automobile production masking an underlying manufacturing weakness.

The Federal Reserve report was “loaded by the motor vehicle numbers, which are unsustainable,” contended Robert G. Dederick, chief economist for the Northern Trust Co. in Chicago.

Excluding autos, the Fed said production dropped 0.1%.

Analysts said home-building the industry has not hit bottom yet, particularly in the Northeast where home-building and sales in states such as New York and Massachusetts have plunged the most.

“Given the events of the past couple of months, with the invasion of Kuwait, higher interest rates (and) falling consumer confidence, we expect the housing industry will continue to decline for the next two to three quarters,” said Dick Peach, an economist for the Mortgage Bankers Assn.

Starts fell 11% in the Northeast during September and were below levels recorded in the 1981-82 recession.

“The situation in the Northeast is very, very bad,” said Dave Seiders, an economist for the National Assn. of Home Builders, “We’re still searching out the bottom there.”

Starts also fell in the West, by 4.4% last month, but gained in the Midwest by 3.3% and rose 3% in the South.

In fact, building of single-family homes rose slightly by 4.3% in September. But that was more than offset by a 14.3% drop in apartment building, partly because banks and savings and loan institutions are less willing to extend credit to contractors, Seiders said.

The department said previously August housing starts had fallen by 1.7% but revised that to a 1.0% drop.

Total starts last month were 10% lower than in September, 1989, when they were at a 1.263-million-unit rate and building in the first three quarters of 1990 also was running 10% below comparable 1989 levels.

Current mortgage interest rates for 30-year loans that now average 10.66% should fall below 10% within six months, Seiders said, which would aid building activity.

Rates now are far below the staggering 15%-16% range for mortgages that were common in the early 1980s when the country was in recession, he said.

In another report, the Federal Reserve revised output figures for July and August to show the industrial economy stronger than first reported last summer. Production in July was boosted from flat to a 0.2% gain while August output was changed from a 0.2% decline to a 0.1% advance.

“There were a lot of questions about whether we were still growing in the third quarter,” said David Jones, an economist with Aubrey G. Lanston & Co., a New York securities dealer. “What we had was an economy that was slipping into recession in slow motion.”