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The Honolulu Advertiser
Posted on: Friday, October 18, 2002

Recovery uneven in September

By Jeannine Aversa
Associated Press

WASHINGTON — Low mortgage rates drove housing construction in September to the highest level in 16 years, but the nation's industrial sector showed new signs of stress, confirming that economic recovery remains uneven.

"Overall, we're walking a tightrope on a breezy day, but we're getting closer and closer to the other side," said Bill Cheney, chief economist at John Hancock Financial Services.

"The absence of really bad news is a positive sign."

The Federal Reserve reported yesterday that factory production declined in September for the second straight month, and the Commerce Department reported that more Americans filed new claims for jobless benefits. But the huge increase in housing construction helped to leaven that news.

"The American dream is becoming a reality as fast as Americans can get a mortgage and find a moving van," said economist Joel Naroff of Naroff Economic Advisors.

The number of housing projects started in September climbed to a seasonally adjusted annual rate of 1.84 million units, a 13.3 percent jump from the previous month. It was the highest level of housing construction since June 1986.

Only last month, the government reported that home-building activity in August fell by 1.5 percent, a decline that made some economists question whether the housing market — a pillar for the economy — might be cracking.

Against this backdrop, economists have mixed opinions on whether the Federal Reserve will cut interest rates for the first time this year at its next meeting on Nov. 6.

Even with this week's uptick, rates are still remarkably low, feeding a boom in mortgage refinancing. Savings or extra cash coming out of refinancing deals is helping to support consumer spending and home buying amid uncertain economic times and eroding consumer confidence, economists said.

Construction of new single-family homes in September skyrocketed 18.2 percent to a rate of 1.48 million, the highest level since November 1978. But work on apartments and other multifamily housing units dropped 4.4 percent to a rate of 329,000. The rental market has been hurt a bit as low mortgage rates have made it increasingly affordable for people to buy homes.

By region, housing construction soared in the West by 24.2 percent to a rate of 446,000. In the Midwest, builders broke ground on a rate of 371,000 housing units, an 11.4 percent jump. In the South, housing starts rose 9.8 percent to a rate of 841,000, and in the Northeast they increased 9.5 percent to a rate of 185,000.