Advertisement
YOU ARE HERE: LAT HomeCollections

More Signs of Slowing: Housing Starts Off, Inflation Restrained

March 17, 1995|From Times Staff and Wire Reports

In new signs that the U.S. economy is growing only modestly, housing construction slipped 2.6% last month, despite gains in California and some other regions, while consumer prices rose 0.3%, the government reported Thursday.

Stock and bond prices rallied on the reports as investors concluded that the Federal Reserve Board is not likely to raise interest rates again soon in its bid to slow economic activity and keep prices in check.

While some saw hints of inflation in the consumer price report, a broader array of evidence Thursday reinforced the view that the economy has slowed markedly from its hectic growth pace of 1994.

The number of Americans filing new claims for unemployment benefits rose by 5,000 last week to 343,000, the Labor Department said. It marked the first time since October that such claims have risen for two weeks straight.

Separately, the Federal Reserve Bank of Philadelphia said its index of regional manufacturing activity showed the lowest reading since August, 1993.

The reports suggest that "the U.S. economy has slowed, that inflation pressures remain subdued and that interest rates should be fairly stable," Merrill Lynch & Co. said.

Last month's CPI rise was fueled by higher costs for food, airline fares, education, auto financing and doctor's visits. In the West, more than three-fourths of the increase was due to higher prices for shelter and household furnishings and services.

Overall, the price increases more than offset lower prices for gasoline and some food products, such as vegetables and coffee. The core rate of U.S. inflation--excluding volatile food and energy costs--rose 0.3%.

That is high enough to trigger a few alarm bells, contributing to an annualized 3.7% inflation rate this year--compared to 2.7% for all of last year. Indeed, for all the signs of slowing, the economy continues to create new jobs at a rapid clip and incomes have been rising in recent months. The nation's factories have been operating at their busiest pace in years.

Inflation is "still pretty moderate, but it could be the beginning of a gradual rise," said James Glassman, senior economist at Chemical Securities Inc. "When the economy is operating at this level of capacity, you expect to see this."

Still, the Clinton Administration and many economists believe that the Fed's preemptive strike against price pressures over the past year in the form of seven interest rate increases will be enough to slow the economy to a more moderate level and keep inflation from rising uncontrollably.

Other economic snapshots released Thursday were consistent with the image of an economy that is slowing down.

The 2.6% drop in new-home building, to a seasonally adjusted annual rate of 1.32 million units, was the slowest performance in a year, reflecting a double-digit plunge in the South.

By contrast, housing starts were up 4.6% in the West at 344,000--a statistic dominated by California--and 1.4% in the Midwest, at 296,000. They jumped 13% in the Northeast, to a 130,000 rate.

Nonetheless, an 11.2% dip in the South, to a 553,000 rate, was the lowest since June, 1993, and helped drag down the national percentage.

The Federal Home Loan Mortgage Corp. said 30-year, fixed-rate mortgages averaged 8.83% in February, down from 9.15% in January but well above the 7.15% average of February, 1993.

Analysts said higher mortgage rates, which have added $200 to the monthly payment on a $150,000 home loan over the past year, are taking their toll on the housing industry.

"We were looking for a modest slowing in the housing sector, and these construction numbers are reflecting that," said economist David Lereah of the Mortgage Bankers Assn.

* MEXICAN CRISIS

The beleaguered peso fell again. A1

* MARKETS REACT

The Dow closed at a record high. D3

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Housing Starts

Seasonally adjusted annual rate, millions of units:

Feb. 1995: 1.32

Source: Commerce Department

Consumer Prices

Higher costs for food, education and airline fars helped push consumer prices up 0.3% in February. Percent change month to month, seasonally adjusted:

Feb. 1995: 0.3%

Source: Bureau of Labor Statistics

Advertisement
Los Angeles Times Articles
|
|
|