Two Economic Reports Hint at a Recovery : Commerce: Consumer prices were flat in January. Construction of new homes and apartments jumped 5.5%.

In a double dose of promising economic news, the government on Wednesday reported that consumer prices remained virtually flat in January while construction of new homes and apartments rose 5.5%.

The continuation of low inflation from last year and the signs of a reviving housing industry will help set the stage for a long-awaited recovery later this year, economists said.

“Certainly, lower inflation is one of the keystones to supporting an economic recovery,” said Lynn Reaser, an economist at First Interstate Bancorp. “Hopefully, we will have the best of combinations: improving economic growth and relatively low inflation.”

The news was not as bright in the West, however. The region saw prices rise higher than in the rest of the nation, and the rate of new-home construction continues to fall.

The economic reports were issued as Alan Greenspan, chairman of the Federal Reserve Board, told Congress that he was more optimistic about a recovery this spring. “We are beginning to see stirrings,” he said.

The Labor Department said the consumer price index, a measure of inflation, rose 0.1% in January, with lower energy and food costs getting much of the credit for limiting the increase. Last year, consumer prices went up only 3.1%--the smallest increase in five years--and the annual rate is expected to rise 3.5% in 1992.

In the West, higher housing costs were responsible for most of the 0.6% increase in consumer prices for the 13-state western region, according to the Labor Department. In the five-county Los Angeles area, consumer prices in January rose 0.8%, primarily as a result of higher grocery and shelter costs.

In a separate report, the Labor Department said Americans’ inflation-adjusted earnings fell 0.7% in January. The decline, the sharpest in three months, was caused primarily by a 0.6% fall in average weekly hours by non-agricultural production workers.

On the housing front, the Commerce Department said the pace of new single-family home and apartment construction reached a seasonally adjusted annual rate of 1.17 million units in January. That is the highest level since May, 1990.

A pickup in residential construction and sales often means more business for retailers and makers of furniture and appliances.

The January increase in residential construction--due primarily to a jump in apartment building--came on the heels of a 1.9% increase in December. The December figure was revised down from an initial estimate of 2.6%.

The resurgence in construction is linked to dramatically lower mortgage rates. Interest on fixed-rate mortgages, for example, fell to a 19-year low of about 8.25% in early January, but has risen since then. The increase in rates worried David Seiders, an economist with the National Assn. of Home Builders.

“If this goes up much further, it will clearly be a real problem,” Seiders told Reuters. A small rise in rates can quickly increase monthly mortgage payments and reduce the number of qualified home buyers.

The improvement in residential construction was centered in the Midwest, where the seasonally adjusted rate soared 33.9% to 324,000 units.

The rest of the nation, however, saw a decline in construction. Housing starts fell 2.3% in the West, 7.6% in the Northeast and 0.9% in the South.

Although there was a drop-off in new construction, real estate agents in California reported higher interest in existing homes.

“We have definitely seen a surge in buyer activity” in January, said Chuck Lamb, president of the California Assn. of Realtors. Agents in the Sacramento area, for example, reported that the number of deals that entered escrow in January shot up 59% from figures a year ago. The increase was 25% in the San Fernando Valley.

“It is clearly the turning point,” Lamb said. “It’s looking like the future is going to be bright.”

Economic Indicators Improve Housing Starts Seasonally adjusted annual rate, millions of units Jan., ‘92: 1.17 Dec., ‘91: 1.11 Jan., ‘91: 0.84 Source: U.S. Dept. of Commerce Consumer Price Index Percent change from prior month, seasonally adjusted Jan., ‘92: +0.1% Dec. ,’91: +0.2% Jan., ‘91: +0.4% Source: U.S. Dept. of Labor