WASHINGTON - A surge in housing starts in August is evidence that the latest round of cuts in interest rates by the Federal Reserve is helping to provide some lift to the weak economy, analysts said yesterday.
But they cautioned that the economy remains hobbled by stagnant employment, low consumer confidence, and other factors that are making people reluctant spenders.
Their comments came after the Commerce Department reported that total housing starts jumped 10.4% to a seasonally adjusted 1.237 million units, the highest level since March, as builders began work on more single-family and multifamily units in nearly all regions of the country.
The increase came after two straight months of decline and marked the biggest advance since February 1991. a Commerce Department spokesman said.
Starts of single-family homes shot up 8.5% to 1.055 million from a revised 972,000 in July, when starts were flat.
In the multifamily sector, which has been suffering from overcapacity and slack demand for a long time, starts jumped 23% to 182,000 units from 148,000 in July.
Economists often caution that the monthly housing statistics produced by the Commerce Department are highly volatile and subject to large revisions. Still, said Lyle Gramley, consulting economist for the Mortgage Bankers Association, "We are seeing an improvement, and I think we'll see further improvement in the months ahead, but I don't think the latest figures signal a boom in housing."
The volume of loan applications from people seeking to buy a new home or an existing home is up sharply since the Fed cut the discount rate on July 2, suggesting that "people's demand for credit to buy homes has been strengthened since the drop in interest rates," said Mr. Gramley.
But not all signs for the housing industry are promising, he said. "The anecdotes that we have are not as strong as these numbers suggest, and that worries me a bit. If you talk to people around the country, you don't get the feeling that housing is improving that much."
The Commerce Department figures show that builders' applications for permits, which some economists consider a more reliable indicator than the figures for starts, retreated 1.6% to 1.063 million units in August. Permits for single-family houses were off 0.9%, and multifamily permits dropped 4.5%.
The fall in permits followed a healthy rise of 4.7% to 1.0809 million in July, the highest level since March.
"Clearly, the lowest mortgage rates in 20 years have helped the housing market," said Mark Obrinsky, senior economist for the Federal National Mortgage Association. But, he added, "We're still in a period of very sluggish growth in jobs and income."
On a regional basis, starts shot up 15.2% in the West, 14.5% in the Midwest, and 9.8% in the South. In all three regions, the pace of building was the fastest since March. The only downturn came in the Northeast, where starts fell 6.7% to 112,000, the lowest level since September 1991.