U.S. HOUSING DATA FAIL TO CLARIFY ECONOMIC PATH Surprisingly strong U.S. housing statistics for February cannot be taken as an indication that the economy is generating any momentum and are not sufficient cause to start lifting forecasts for first quarter growth, economists said. Building was boosted by two factors last month, unusually mild weather and low mortgage rates. But economists said that seasonal factors make it hard to assess what spur to the economy, if any, will come from housing in coming months. And after a steady retreat, mortgage rates seem to be near bottom. U.S. housing starts rose 2.6 pct in February to a seasonally adjusted annual rate of 1.851 mln units from 1.804 mln in January. It was the highest pace for starts since April 1986. The rate at which permits were issued for future building climbed 4.4 pct to a seasonally adjusted annual rate of 1.764 mln units after dropping 11.52 pct to 1.690 mln in January. "February's weather is usually more adverse for home building. Because of seasonal factors it's difficult to determine what this means for the economy down the road," said Allan Leslie of Discount Corp. The housing report is seasonally-weighted to compensate for weather-related setbacks. As a result, milder temperatures inflate the statistics. Economists said that low mortgage rates also were a spur to building last month. But several believe that rates will now consolidate before edging up in late spring/early summer. "Builders are looking at current mortgage rates and saying 'Let's do it now'," said Mark Obrinsky of the U.S. League of Savings Institutions in Washington, whose members supply much of the financing for home building. But Obrinsky doubts that there is much more downward potential for rates because he foresees higher inflation and some overall improvement in the U.S. economy. He expects rates to gain 50 to 100 basis points in early summer from the 9.50 pct fixed rate effective in February. Last November, fixed rate mortgages were about 10.30 pct. As expected, the strength in housing was concentrated in the single-family sector. The multi-family area -- which typically represents rental units -- remained weak due to high vacancy rates and increased capital costs of such units following tax law changes effective January 1. Single-family starts rose at a 5.6 pct annual pace to 1.317 mln units. Multi-family fell 4.1 pct to a 534,000 rate. "Strength in the single-family sector indicates that low mortgage rates are doing their job. But we're probably not looking at a great deal of growth potential," said Ward McCarthy of Merrill Lynch Capital Markets. McCarthy noted that the housing report, together with larger than expected gains in U.S. employment, industrial output and retail sales in February, may cause some observers to start waving "four pct GNP banners" for the first quarter. Gross national product grew 1.3 pct in the fourth quarter. But McCarthy, who still expects first quarter real GNP to come in at an annual rate of 2.5 pct or slightly above, is not convinced that growth will pick up in future. "The big story is the inventory re-building that's going on now, not all of which is intentional," he said. For example, U.S. automakers, who are already saddled with high stocks, produced at an annual rate of 8.3 mln units in February compared with domestic car sales of 7.3 mln. Thus while inventories could contribute to GNP in the first quarter, they may result in scaled-back production and weaker growth in the second, he said. "If most of the first quarter growth is inventory building and we cannot identify any improvement in export demand, then there is the potential for softness in the second quarter," agreed Allan Leslie of Discount Corp. He is still evaluating first quarter GNP prospects. Federal Reserve chairman Paul Volcker said last week that current data do not show the worsening in trade has reversed. "At the same time that we are pumping up inventories in the first quarter, we could foresee production slowing in the second," cautioned Joe Plocek of McCarthy, Crisanti and Maffei Inc, who expects first quarter growth of about three pct.