Housing starts grew a surprising 8.9 percent in September after declining for two consecutive months, as builders anticipated increased demand for homes because of falling interest rates.
However, capacity utilization at the nation's factories, utilities and mines dropped last month for the first time since the last recession, as factory output slowed.
The pickup in new housing starts followed a 12.3 percent decline in August that was attributed largely to high mortgage rates. Economists said they expect housing starts to remain moderate through the end of the year, particularly because builders anticipate a fall in mortgage rates.
Mortgage rates already have slipped slightly as shorter-term rates -- the cost of money to lenders -- have declined.
"Lower interest rates, a good supply of mortgage funds and continued growth in income and employment suggest further gains in new home construction in the months ahead," said Commerce Secretary Malcolm Baldrige.
New housing projects were at an annual rate of 1.676 million dwelling units last month, Commerce said. For the nine months through September, housing starts have averaged a rate of 1.84 million, compared with 1.7 million last year.
"It is a good showing for housing starts after several months of decline," said James Christian, chief economist for the U.S. League of Savings Institutions. He said housing starts probably will "stay in the area we are in now and probably be there for the rest of the year. It's going to bring us in for the year somewhere between 1.7 million and 1.8 million" housing starts, "moderately better than last year."
However, Christian noted that building permits, which generally indicate builders' future plans, fell 5.4 percent last month after declining 3.8 percent in August. That data suggests "builders aren't terribly optimistic about the future."
Starts of single-family homes increased 8.3 percent last month and multi-family projects rose 9.9 percent, Commerce said.
Meanwhile, the Federal Reserve Board reported that American industry used 81.9 percent of its capacity in September. The rate in August was 82.6 percent.
The decline in capacity utilization is good news for inflation, but not promising for people who are still out of work, economists said. Earlier this year, economists had expressed fears that if industries continued to churn out goods at rapid rates without expanding capacity, shortages and bottlenecks would occur, leading to price increases for key goods and accelerating inflation.
However, some industries have expanded their plants and imports have substituted for some goods that would have been made by U.S. producers, relieving pressure on capacity, economists said.
Lower production was a major factor for the decline in capacity utilization. The Labor Department reported earlier this month that factory jobs declined in September and have yet to recover to the level of jobs before the recession.
The operating rate for last month was below the 82.4 percent average for capacity utilization during the period from 1977 through 1982, the Fed said.