U.S. housing starts for October came in weaker than expected, down 11.4%.

BMO Nesbitt Burns says that the apparent softness of the report was reinforced by a sharp decline in multi-family starts, which fell to their lowest level since January 1997. “Cold, wet weather during the month likely contributed to the result,” it notes. “However, the report also contained some good news on the housing market. The important single-family starts segment slipped by 7%, a modest decline given the surge in activity in September, with starts remaining comfortably above the average level over the prior 12 months.”

RBC Financial Group economists says that housing markets are expected to weaken in 2003, “but cyclical conditions should remain predisposed to another healthy year for construction activity. Building permits data, also out this morning, remained strong suggesting a willingness by builders to have the paperwork in the pipeline for construction activity in coming months.” Building permits rose 1.7%.

“Although housing starts were weaker than expected in October, the news that homebuilders remain upbeat in November, and mortgage rates that remain very low by historical standards suggest that the U.S. housing market outlook is still quite positive,” says Nesbitt.

RBC says that there are also encouraging signs of stronger consumer confidence. The ABC News/Money Magazine Consumer Comfort Index, released late yesterday, indicated that U.S. consumer confidence is improving. “The index climbed for the fourth consecutive week and gains were broad based across major subcomponents,” says RBC. “Confidence is still weak, but is showing signs of improving from the mid-October lows. This survey is confirmed by the University of Michigan’s consumer sentiment survey for November which posted a significant improvement in confidence after five months of decline. The next such measure to watch will be the Conference Board’s Consumer Confidence Index, due out on November 26th and if the other surveys are any indication, this measure should also post an improvement driven by another fed rate cut and improving equity markets.”