New signs of a slowly weakening economy were evident yesterday as the Commerce Department reported a drop in new housing starts and smaller gains in personal income and outlays for December.
Housing starts fell only 1 percent, from a seasonnally adjusted annual rate of 1.56 million units in November to 1.55 million last month, less of a decline than most analysts expected.
Personal income rose $21 billion in December to a seasonnally adjusted annual rate of $2.2815 trillion, the smallest increase since August. Personal outlays climbed at a midest $6.3 billion rate, far less than November's $21.9 billion gain and the smallest rise since a $3 billion drop in May during the recession, the department said.
A number of forecasters, though not all, believe the economy will decline this quarter as a result of record interest rate levels reached earlier this month. Even more optimistic economists expect very little growth in the output of goods and services during the first half of 1981.
Michael Sumichrast, shief economist of the National Association of Home Builders, said the relatively small decline in overall housing starts was surprising in view of those rapidly rising interest rates and declining sales of existing homes.
"I just don't see how you can have any strong activity with interest rates up so high and saled so weak," he said.
Starts of single-family units fell 6 percent to an annual rate of 947,000 from 1.01 million in November. Starts of units in structures with five or more rose from a 396,000 rate in November to 472,000 last month.
Thomas Harter, chief economist of the Mortgage Bankers Association of America, said one reason for the stronger performance in the multifamily sector is that high interest rates are causing homebuyers to switch to purchases of lower-priced condominiums from more costly single-family houses. Harter said builders in December still were operation with mortgage commitments made earlier when rates were lower. Now that those commitments made earlier when rates were lower. Now that those commitments are carrying 15 percent interest rates, he said starts will fall more sharply with a big drop coming in February.
Separately, the data on building permits suggest a further drop ahead in construction. Permits declined from a seasonally adjusted annual rate of 1.35 million units in November to a 1.23 million rate in December. Here, too, the drop from single-family units was greatest.
The smaller $21 billion rate of gain in personal income last month was due entirely to a reduced increase in wages and salaries, which rose only $12.9 billion compared with November's $18.4 billion.
The very small increase in personal outlays, which was nearly $10 billion less than the month's rate of increase in disposable personal income, signaled a more cautious spending mood on the part of consumers. The slowdown in buying was concentrated in durable goods, purchases of which dropped by $1 billion to a rate of $223.2 billion. The cutback was most heavily felt in new car sales, but spending for nondurable goods and services rose $2 billion and $5 billion, respectively, also significantly less than in October or November.
Underscoring the caution, consumers incrased their saving. Personal saving rose to 5.8 percent of disposable personal income in December from 5.4 percent in November.
Beginning this month, wage earners have been hit with a significant increase in Social Security payroll taxed, another reason most forecasters believe consumer spending will remain weak for some time to come.
Some other recent data about the economy in December, such as the 1 percent rise in industrial production and an increase in employment by more than 200.000 jobs, suggest a still fairly strong performance. But most analyst expect both those indicators to turn down shortly, too, as slower sales result in fewer orders for new goods.