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.
  

