Housing Starts, Industrial Output Drop : Indicators: Analysts blame high interest rates for April’s lackluster performances.

WASHINGTON — The slowdown in consumer spending rippled through the U.S. economy last month to home builders and manufacturers, government reports showed today.

Starts of new homes rose a smaller-than-expected 0.4% in April as a glut of unsold properties kept cautious builders from taking advantage of spring weather, Commerce Department figures showed.

Separately, the Federal Reserve Board said industrial production fell in April for the second consecutive month, as factory output of autos, home appliances and furniture slowed.

Analysts attributed the lackluster performance in both key economic sectors to high interest rates that had produced a glut of unsold autos and houses. But they noted that rates have fallen recently and said both sectors apparently are stabilizing.

“The economy is not falling,” said economist Eugene Sherman of M.A. Shapiro & Co., a Wall Street investment adviser. “It’s just more sluggish than anticipated.”

Economist Joseph Blalock of America’s Community Bankers agreed but said, “If you’re worried about inflation, this slowing is likely to be a good thing.”

The Fed has sought a slower economy for more than a year as it engineered seven short-term interest rate hikes to defuse any inflationary explosion.

Bond prices rose on the housing and industrial production reports and lessened fears of higher prices. High inflation hurts bonds and other fixed interest-bearing investments.

The news did not move stock market, which closed mixed.

Although the Commerce Department reported that construction of new single-family homes and apartments rose 0.4% in April, the advance was attributed to a 2.4% increase in multifamily housing. Single-family homes--80% of starts--slipped 0.1%, the fourth straight decline.

Overall, housing starts totaled 1.24 million at a seasonally adjusted annual rate, up from 1.23 million in March, which had been the lowest since 1.07 million in March, 1993.

April’s modest increase in housing starts caught analysts by surprise. They were expecting lower mortgage rates to lead to a 9.1% gain for the month, according to a Bloomberg Business News survey.

Applications for building permits--often a barometer of future activity--increased 0.6% in April, to a 1.24-million rate, the first advance in three months.

Starts rose 8.8% in the West, to a 298,000 rate, and 2.6% in the South, to 563,000. But they plunged 22.5% in the Northeast, to 107,000, and dipped 0.7% in the Midwest, to 268,000.

Meanwhile, the Fed reported that production at the nation’s factories, mines and utilities fell 0.4% in April, marking the first back-to-back declines since December, 1991, and January, 1992. Output had fallen 0.3% in March.

Factory output dropped 0.5%, including a 0.4% fall in auto production.

“More than half the decline in industrial production took place in the auto sector, where inventories are being sold off before the next model year arrives,” said Jerry Jasinowski, president of the National Assn. of Manufacturers.

The Fed report also showed the industrial operating rate fell in April for the third straight month, down 0.6% to 84.1% of capacity, the lowest since July.

Economists contend that as production approaches full capacity, bottlenecks develop and inflationary pressures build. And despite the recent declines, the rate remains at a relatively high level.

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Housing Starts

Seasonally adjusted annual rate, in millions of units:

April 1995: 1.24

Source: Commerce Department

Industrial Production

Seasonally adjusted index, 1987=100

April 1995: 121.1

Source: Federal Reserve Board

Capacity Utilization

Seasonally adjusted percentage of total capacity:

April 1995: 84.1%

Source: Federal Reserve Board