New Home Sales Up; U.S. Incomes Gain : Economy: But analysts call housing report ‘an erratic spike’ and say growth is slowing.

Sales of new homes rose in January despite higher interest rates, while the incomes of Americans posted a solid advance that exceeded spending increases.

But analysts said the economy is slowing and there is little cause for financial markets to worry that overheating will generate inflation.

The Commerce Department reported Thursday that sales of new homes rose 3.8% in January to a seasonally adjusted annual rate of 679,000, the highest level in three months.

“It’s fairly strong, but it’s off the peak,” said economist Cynthia Latta of DRI-McGraw Hill, a Lexington, Mass., forecasting firm. “The market has been held up by adjustable-rate mortgages,” and warmer-than-usual weather has also helped, she said.

But Latta noted that another report this week shows that sales of existing homes dropped in January to their lowest level in nearly two years and that housing starts were also down.

“We’re on a slowing growth track. One month’s data doesn’t change that,” Latta said.

“It’s kind of an erratic spike in the numbers. All the trends indicate there is a loss of momentum,” said Jim Irvine, president of the National Assn. of Home Builders.

Thirty-year, fixed-rate mortgage rates averaged 9.15% in January, up from less than 7% before the Federal Reserve Board began forcing up interest rates early last year. They have fallen below 9% since then.

A jump to 9% from 7% would add $209 to the monthly payment on a $150,000 mortgage.

Meanwhile, Americans curbed their spending on expensive goods such as new cars in January and socked more money away in savings, the Commerce Department said, indicating consumer caution that may mean slower growth ahead.

While incomes from wages, salaries and other sources climbed a healthy 0.9% to a seasonally adjusted annual rate of $5.94 trillion, spending increased just 0.4% to a rate of $4.77 trillion.

The amount put into savings rose to 5 cents out of each after-tax dollar earned, from 4.7 cents in December--the highest monthly savings rate since April, 1993, when it also was 5 cents.

The new income figures were swelled by earnings for overtime and some special factors, including pay raises for federal workers and cost-of-living increases that drove up benefits.

The income and spending figures were not adjusted for inflation. When adjusted, disposable incomes rose 0.3% in January, while spending was unchanged.

Analysts said the increased savings rate suggests a healthy reappraisal by consumers of their financial situation after a freer-spending 1994. It also implies that costlier credit is beginning to have an impact.

“It indicates the economy still retains considerable momentum because basic incomes are growing,” said economist Lynn Reaser of First Interstate Bancorp in Los Angeles.

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Personal Income

Seasonally adjusted annual rate, in trillions of dollars:

Jan. 95: 5.94

Source: Commerce Department

Personal Spending

Seasonally adjusted annual rate, in trillions of dollars:

Jan. 95: 4.77

Source: Commerce Department