U.S. housing starts rose 2.4% to an annual rate of 1.697 million units in November from an upwardly revised 1.657 million units in October, providing key support to the U.S. economy.

The November level exceeded the market’s expectations and reflected gains in both single-unit dwellings and multiples, says Bank of Montreal. “Housing starts have slowed in recent months — they are down 4.8% annualized in November/October from the third quarter after rising 7.4% in the third quarter from the second quarter — though the current level remains historically high.”

BMONesbitt Burns also notes that starts for October were revised upward to a decline of 8.4% from the prior 11.4% drop. “Housing construction remains very healthy. Despite a decline of 2.7% in building permits, there is little sign of a cooling off of housing activity in the near future. Permits have been above 1.7 million for five of the last six months. As well, the 12-month trend points toward further strength,” it reports.

“The foundations of the U.S. housing market remain rock-solid. Mortgage rates remain low, permits remain high, and home builders are busier than they have been in years. Housing will retain its prominent place as a driver of the U.S. economy in the months ahead,” Nesbitt concludes.

BMO also says that the healthy housing market also continues to drive demand for, and output of, related products. Production of American factories, mines and utilities rose 0.1% in November, in line with market expectations. This, the first increase in industrial production since July, followed a revised decline of 0.6% in October. The increase in industrial production also allowed the capacity utilization rate to edge up to a still-low 75.6% from 75.5% in October.

Nesbitt says that the industrial production report was mixed and did little to suggest U.S. manufacturing is gaining traction. “Some 60% of industries cut output in the last three months, with some of that reflecting the dock strike. Still, levels were generally higher than a year ago, which is impressive given the overvalued dollar and sluggish global growth.”

RBC Financial Group economists says, “This adds to a moderately improving picture for manufacturers backed up by other recent indicators, including yesterday’s Empire State Manufacturing index for December, the November Philadelphia Fed survey, the up-tick in the ISM Manufacturing index that nonetheless still portrayed U.S. manufacturing as contracting, and a sharp rise in the Chicago Purchasing Managers’ Index that suggests improving Midwest conditions. Thursday’s Philadelphia Fed index for December will provide the next test.”

“The production of capital goods has declined lately, a big disappointment, partly reflecting global competition rather than a renewed downshift of demand. Still, this is a key area to watch to see if the economic soft spot gives way to a renewed acceleration next year,” says Nesbitt. “We are seeing a clear turn for the better, which closely parallels a normal cyclical experience.

BMO concludes, “Today’s reports, showing a solid housing market, tentative evidence of an improvement in production, and still tame inflation, will encourage the Fed to maintain a steady policy stance at the January 28/29 FOMC meeting.”