WASHINGTON - The decline in housing starts reported yesterday surprised many analysts, who the number shows that skittish consumers continue to bold back the housing market as well, as the entire economy.

Analysts had expected housing starts figures for July to show a 2% to 3% gain. However, the Commerce Department's report report shows housing starts fell 2.8%, while the previously reported drop of 3.2% in June was revised to 3.8%.

"The report was somewhat disappointing, particularly with the downward revision of last month's number," said Dan Seto, economist with Nikko Securities Co. International. "The underlying problems consumers face have not really changed much in several months."

Analysts expected an improvement in housing starts in July because such factors as low mortgage rates and inventories suggest the market is primed for a rebound, explained Peter Greenbaum, an economist with Smith Barney, Harris, Upham & Co. But he acknowledged that those conditions have been in place for several months.

"It appears that the economy is just moving sideways at this point." Mr. Greenbaum said. "You're talking about a consumer who is very shaky right now.

Despite the decline in housing starts in June and July, many analysts expect the housing market to improve modestly in the months to come.

"There should be an increase in housing starts in August," said Bob Villanueva, director of forecasting for the National Association of Home Builders. He said builders are "reasonably confident" that things will improve in the next few months, and that they are "somewhat positive" about the next six months.

"We're not talking about a barn burner in August, just a slight increase," Mr. Villanueva said.

Mr. Greenbaum concurred. "You would hope to see higher starts soon," he said. But he acknowledged that "it's a slow go right now." Both he and Mr. Villanueva said they do not think the full effects of the Federal Reserve's most recent discount rate cut, in early July, have filtered through the system.

"The full impact of lower interest rates has not reached the market," Mr. Villanueva said.

Regardless of the effects of the last interest rate cut, economists said the decline in housing starts will add a little more pressure on the Fed to ease again.

Mickey Levy, chief economist of CRT Government Securities Ltd., said he expects the Fed to ease, again in the next few months. But he added that factors besides housing starts will probably prompt the Fed to act, such as weak money supply numbers or another poor employment report.

Henry Willmore, an economist with Chase Manhattan Bank, said housing starts are "not a key determinant of Fed policy." However, he said, "every little bit adds up."

Few, if any, analysts expect significant gains in housing starts before the end of the year. "Interest rates matter, but there are other things going on in the economy," Mr. Villanueva said.

Mr. Levy explained that consumers are unlikely to boost the housing market appreciably soon because the job market and consumer confidence are weak. Also, he said people are not rushing out to buy homes and other big-ticket items because their inflationary expectations are falling.

"People are consuming, but they're not consuming aggressively," "Mr. Levy said.

In the same report yesterday, the Commerce Department said that housing permits, a measure of future building activity, increased 3.7% in July, after four straight monthly declines.

Mr. Greenbaum said the increase in permits offers "a glimmer of hope." However, the July permits gain was partially offset by a downward revision in the June number to a 2.1% drop, from a previously reported 1.3% decline.

Analysts also noted that the July gain in permits resulted almost completely from a 22.5% advance in multifamily units, which they say is not a good indicator of future economic activity. Permits for single-family units, which inched up 0.2% in July, are a better indicator, they said.

The overall decline in housing starts in July resulted from a 4.1% drop in single-family units and a 6% decline in multifamily units. And most regions showed declines, with the West posting the largest drop, at 7.7%. The South posted the only gain, at 0.4%.

As of the end of July, 713,700 housing units have been started, which is 21% ahead of last year's pace, the Commerce Department reported. Mr. Villanueva said that statistic "overstates the strength of the housing market" because 1991 represents the "depth of the recession" for the housing market.

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