More evidence piled up yesterday that the economy at least held its ground during September rather than declining.

Housing starts rose to a seasonally adjusted annual rate of 1,881,000 units last month, up 4 percent from the August rate of 1,806,000, the Commerce Department reported. tDespite high mortgage interest rates, housing starts have remained fairly strong because would-be buyers are willing to pay those rates and housing lenders have, until recent weeks had the money to lend, housing experts say.

Personal income increased by $12.1 billion in September to a seasonally adjusted annual rate of $1.955.2 billion, the department also said. That compared to an $11.1 billion gainin August and a $26.8 billion jump in July, when increases in Social Security benefits and other transfer payments swelled the total.

Wages and salaries rose $10.5 billion, up significantly from August's $5.7 billion gain. Much of this changewas due to a large increase in manufacturing industry payrolls, which rose $2.6 billion after falling by $1.8 billion in August, the department said.

Reflecting the same step-up in manufacturing activity, the Federal Reserve Board reported that the nation's factories operated at 85.1 percent of their capacity in September, up from 84.8 percent in August.

It was against a background of some economic strength that the Federal Reserve decided to tighten credit availabilty sharply. Fed Chairman Paul Volcker told the Joint EconomicCommittee, "It looks as though a real downturn has been delayed."

The Fed's actions, which have pushed interest rates to record levels, were designed "to deal with the clear danger of a renewed outburst of destabilizing and inflationary speculative pressures -- a developement that could only complicate and distort the present process of economic adjustment," Volcker declared.

Volcker said that a moderation of energy price increases, combined with current budget and monetary policies, give "a reasonable prospect that the overall inflation rate will soon decline." There is the possibilty that it will fall below a 10 percent annual rate by the end of the year, compared to the current 13-percent rate, he said.

Teasury Secretary G. William Miller, who appeared with Volcker before the JEC, said U.S. consumers are saving too little and borrowing too much. He declined to "foreclose the possibility" that the government might need to impose direct controls on consumer credit, but he does not think it will necessary.

Miller said the growth of money and credit had to be restrained to help control inflation. "If we do it rapidly enough and forcefully enough, then housing does not have to go into a tailspin," Miller asserted.

In past periods of tight money, housing has felt the brunt of the credit squeeze. While that has not happened to the same degree this year, housing experts say it is about to hit the industry now.

The September rise in housing starts is particularly misleading given the Fed's actions this month, they say.

"There housing statistics reflect (lending) commitments made several months ago when funds were more readily avaliable and at lower rates," said Jay Janis, chairman of the Federal Home Loan Bank Board, the agency that regulates federally chartered savings and loan associations.

"They are also indicative of (the Department of Housing and Urban Development's) subsidized multifamily starts that normally occur during this period," Janis continued. "All indicators, however, point to a drop in the fourth quarter and early next year."