Housing starts continued to inch their way upward in March, reaching a seasonally adjusted annual rate of 947,000 units and marking the eighth month in a row the rate has been less than 1 million, the Commerce Department reported yesterday.

As further evidence that the economy still is declining, the Federal Reserve also reported that the utilization of production capacity in the nation's factories fell 0.6 percentage point in March to 71.4 percent, a level 8.4 percentage points below last July and only 2.4 percentage points above the low reached in the deep recession of 1975.

In so-called primary processing industries such as basic steel, the capacity utilization rate dropped to 67 1/2 percent, down 0.6 percentage point from the weather-depressed figure for January and 0.7 percentage point less than the 1975 low.

Robert Dederick, assistant Commerce secretary for economic affairs, noted that the pace for housing starts is up 10.9 percent from last October's nadir of an annual rate of 854,000. Over the same five-month period, housing permits are up 20 1/2 percent.

But from such a depressed level, those are regarded as modest improvements at best. Dederick said tax legislation passed last year should help stimulate construction of rental housing, and that push, "along with an increase in spendable income and gradually declining mortgage interest rates, should produce further gains in residential building over the course of the year."

Fred Napolitano, president of the National Association of Home Builders, was less than enthusiastic, saying that the March increase "should not be misinterpreted as the beginning of the turnaround."

However, Michael Sumichrast, chief economist for the builders group, said, "At least we're getting to the point where starts are not coming down any more, which is a positive development. I'm reluctant to say things have bottomed out, but it certainly looks that way more and more."

"The idea that a pickup in economic activity is imminent is becoming more and more questionable as the data on April begin to become available," economist Alan Greenspan of Townsend-Greenspan & Co. said.

Meanwhile, the Commerce Department also revised downward by $1.9 billion its estimate of the level of corporate profits from current production in the fourth quarter.