Housing starts are up, along with job market Unemployment rate expected to stay 5.4%


WASHINGTON -- Housing construction rebounded in January, business activity in mid-Atlantic states perked up this month, and labor markets remain robust -- the latest signs of clear sailing for the U.S. economy as it enters its seventh straight year of growth.

"You've got low inflation, low interest rates and high consumer confidence," said Scott Campbell, a spokesman for Pulte Corp. of Bloomfield Hills, Mich., one of the nation's largest home builders. "We think 1997 is going to be healthy for housing."

In a series of economic reports yesterday:

Housing starts rose 2 percent in January, paced by gains in construction of single-family homes, to an annual rate of 1.350 million, the Commerce Department said. A recovery from harsh weather in the West aided the rebound from an 11 percent decline in December.

The Philadelphia Federal Reserve Bank said its index of business activity at manufacturers in eastern Pennsylvania, southern New Jersey and Delaware rose this month to 17.4 in February from 11.3 in January. The positive reading means the number of companies reporting stepped up activity was larger than those reporting weakening business.

And first-time claims for state unemployment benefits rose by a smaller-than-expected 1,000 last week to a seasonally adjusted 309,000 after falling by 16,000 a week earlier, according to the Labor Department. That suggests the economy will add 150,000 to 200,000 jobs in February, analysts said, and unemployment should stay about 5.4 percent.

The news triggered renewed concern among investors that low unemployment would translate into a shortage of workers, higher labor costs -- and ultimately -- higher inflation and interest rates.

That, plus the dollar's day-long slide against other major currencies, weakened bonds. The Treasury's benchmark 30-year bond fell almost a point in late afternoon trading, pushing up its yield more than 7 basis points to 6.65 percent.

The weakness carried over into the stock markets, where the Dow Jones industrial average fell 93 points to close at 6927.38.

January's increase in housing starts fell short of the 6.1 percent rise expected by analysts, and starts in 1997 will probably fall 10 percent short of last year's level, the strongest sales year in two ,, decades, said Paul Taylor, an economist at America's Community Bankers in Washington.

"We had a record-setting year last year but I don't think we can duplicate it," said Cynthia Latta, an economist at DRI/McGraw ,, Hill in Lexington, Mass.

Underscoring a cooling in housing, permits for new housing construction, a gauge of future construction, fell 1.9 percent nationwide in January to an annual rate of 1.395 million after increasing 0.3 percent in December.

By category, starts of single-family homes increased 10.2 percent in January while multifamily starts fell 23.9 percent, according to the Commerce Department.

By region, starts rose 29.9 percent in the West in January, to 344,000. Starts advanced 22.2 percent in the Northeast, to 165,000, the highest level since November 1994. Starts declined 13.2 percent in the Midwest, to 256,000, the lowest in two years. And starts fell 6.8 percent in the South, to 585,000.

Pub Date: 2/21/97

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