U.S. HOUSING DATA FAIL TO CLARIFY ECONOMIC PATH
Surprisingly strong U.S. housing
statistics for February cannot be taken as an indication that
the economy is generating any momentum and are not sufficient
cause to start lifting forecasts for first quarter growth,
economists said.
    Building was boosted by two factors last month, unusually
mild weather and low mortgage rates. But economists said that
seasonal factors make it hard to assess what spur to the
economy, if any, will come from housing in coming months. And
after a steady retreat, mortgage rates seem to be near bottom.
    U.S. housing starts rose 2.6 pct in February to a
seasonally adjusted annual rate of 1.851 mln units from 1.804
mln in January. It was the highest pace for starts since April
1986.
    The rate at which permits were issued for future building
climbed 4.4 pct to a seasonally adjusted annual rate of 1.764
mln units after dropping 11.52 pct to 1.690 mln in January.
    "February's weather is usually more adverse for home
building. Because of seasonal factors it's difficult to
determine what this means for the economy down the road," said
Allan Leslie of Discount Corp.
    The housing report is seasonally-weighted to compensate for
weather-related setbacks. As a result, milder temperatures
inflate the statistics.
    Economists said that low mortgage rates also were a spur to
building last month. But several believe that rates will now
consolidate before edging up in late spring/early summer.
    "Builders are looking at current mortgage rates and saying
'Let's do it now'," said Mark Obrinsky of the U.S. League of
Savings Institutions in Washington, whose members supply much
of the financing for home building.
    But Obrinsky doubts that there is much more downward
potential for rates because he foresees higher inflation and 
some overall improvement in the U.S. economy.
    He expects rates to gain 50 to 100 basis points in early
summer from the 9.50 pct fixed rate effective in February. Last
November, fixed rate mortgages were about 10.30 pct.
    As expected, the strength in housing was concentrated in
the single-family sector. The multi-family area -- which
typically represents rental units -- remained weak due to high
vacancy rates and increased capital costs of such units
following tax law changes effective January 1.
    Single-family starts rose at a 5.6 pct annual pace to 1.317
mln units. Multi-family fell 4.1 pct to a 534,000 rate.
    "Strength in the single-family sector indicates that low
mortgage rates are doing their job. But we're probably not
looking at a great deal of growth potential," said Ward
McCarthy of Merrill Lynch Capital Markets.
    McCarthy noted that the housing report, together with
larger than expected gains in U.S. employment, industrial
output and retail sales in February, may cause some observers
to start waving "four pct GNP banners" for the first quarter.
Gross national product grew 1.3 pct in the fourth quarter.
    But McCarthy, who still expects first quarter real GNP to
come in at an annual rate of 2.5 pct or slightly above, is not
convinced that growth will pick up in future.
    "The big story is the inventory re-building that's going on
now, not all of which is intentional," he said. For example,
U.S. automakers, who are already saddled with high stocks,
produced at an annual rate of 8.3 mln units in February
compared with domestic car sales of 7.3 mln.
    Thus while inventories could contribute to GNP in the first
quarter, they may result in scaled-back production and weaker
growth in the second, he said.
    "If most of the first quarter growth is inventory building
and we cannot identify any improvement in export demand, then
there is the potential for softness in the second quarter,"
agreed Allan Leslie of Discount Corp. He is still evaluating
first quarter GNP prospects.
    Federal Reserve chairman Paul Volcker said last week that
current data do not show the worsening in trade has reversed.
    "At the same time that we are pumping up inventories in the
first quarter, we could foresee production slowing in the
second," cautioned Joe Plocek of McCarthy, Crisanti and Maffei
Inc, who expects first quarter growth of about three pct.
 Reuter
