STILL ON THE FAST TRACK; NO ECONOMIC SLOWING SEEN.

Byline: Robert D. Hershey Jr. The New York Times

Just when it seemed the economy had begun slowing to a safe speed, two government reports Friday renewed fears that it still was running too fast for the anti-inflation police at the Federal Reserve.

Production at the nation's factories, mines and utilities jumped seven-tenths of 1 percent last month - to make growth for the July-September quarter the biggest in 13 years - as their operating rate edged closer to capacity. And builders broke ground on 7.9 percent more new homes in September, erasing nearly all the drop in housing starts over the preceding two months.

Taken together, the latest figures undermined assumptions fed by lackluster retail sales growth, regional surveys of factories and continued tame inflation that activity was slackening and that the Fed could likely avoid restraining it with higher interest rates.

Now, however, ``It's a little too early to say the economy is slowing,'' Melanie Hardy, an economist at Bear, Stearns, said after digesting Friday's figures. She noted especially the rise in industry's operating rate, up three-tenths of a point, to 84.4 percent, the highest since February 1995.

Although there were mitigating factors in both reports, the unexpected strength contributed to sizable declines in the securities markets as traders and investors reassessed the possible outcome of the next Fed policy meeting, scheduled for Nov. 12.

``It's become clear that the economy can't continue to grow at this pace without good reason to expect some monetary tightening,'' said William A. Brown, chief economist at J.P. Morgan. He put the chances of a rate increase next month at ``close to 50-50.''

Still, Friday's statistics were not overwhelmingly strong. The production increase was swollen by a 4.4 percent leap in utility output after a cool August that minimized air-conditioner use.

In fact, manufacturing, which accounts for 86 percent of the Index of Industrial Production, climbed a moderate four-tenths of 1 percent in September, half the increases of July and August.

Moreover, noted Maury N. Harris, senior economist at Paine Webber, higher output recently has been achieved without a corresponding rise in the number of hours worked in factories and thus should not raise fears of inflationary wage pressures.

``So far this year,'' Harris said, ``manufacturing output has been rising by around four-tenths of 1 percent per month faster than factory hours worked - a clear indication of the kind of productivity gains that the Federal Reserve System wants to see continuing in order to keep price inflation low.''

And while housing starts were up for apartments as well as single-family homes - and in all regions of the country - specialists said they had merely plateaued at a high pace of 1.5 million that was no higher than June's.

``We don't have a surge in starts,'' said Paul Taylor, senior economist at America's Community Bankers. ``What we have is a combination of good market conditions, which include low mortgage rates, modest price appreciation, well-managed inventories and the wealth effect'' of rising stock prices.

Friday, the National Association of Home Builders reported another decline in the proportion of members who rated traffic in model homes ``high.'' October's 9 percent reading, which flirted with a five-year low, was seen as a signal that home building would slow in coming months even though the government's report on September starts showed permits issued for future construction climbed 3.4 percent.