Housing starts fell 7% to just 183.6K in October

Week in review

Canada – Housing starts fell 7% to just 183.6K in October, the lowest since March. The decrease in starts was felt in both rural (-6.8%) and urban areas (-7%). The drop in urban starts was entirely due to multis (-13.9%), which dwarfed increases for single family homes (+5.6%). On a regional basis in urban areas, losses were broad based, with the worst being in BC (-15.6%), followed by Quebec (-8.6%), Atlantic Canada (-7.5%), the Prairies (-6.2%), and Ontario (-2%). October’s data extends a trend of underperforming starts relative to building permits. Permits are not fully translating into construction, especially for multiple units, because condo developers may be waiting for appropriate level of pre-sales or, in some regions, for unsold inventories to be absorbed, before adding to supply.

The Teranet–National Bank House Price Index rose 0.2% in October thanks to gains in five of the 11 metropolitan regions covered. On a year-on-year basis, home prices were up 5.4% nationally, but with contrasting fortunes across the country. Calgary led the pack with a 9.1% year-on-year increase, followed by Toronto (+7.4%), Hamilton (+7.3%), Vancouver (+6.5%), Edmonton (+4.9%), Winnipeg (+2.5%), Montreal (+1.1%), Quebec City (+1.0%), Halifax (+0.4%), and Ottawa- Gatineau (+0.2%), while Victoria (-0.1%) was the only city in deflation mode. House price increases have been more vigorous in markets from Toronto to the Western part of the country, where resale markets are generally balanced or tight. East of Toronto, however, 12-month price increases remain soft given the less supportive market conditions.

Manufacturing shipments rose 2.1% in September, erasing part of the 3.5% slump in the prior month. Sales rose in 14 of the 21 industries, including a 9.5% gain for transportation equipment. Excluding transportation, sales rose 0.6%. In real terms, factory sales rose 2.3%, which will give a boost to September GDP. The quarterly picture is also good with the 8.6% annualized increase in real shipments in Q3 (after an 11% advance in the prior quarter).

United States – Retail sales rose 0.3% in October, better than the 0.2% increase expected by consensus. Sales were partly supported by motor vehicles/parts (+0.5%). Excluding autos, sales rose 0.3%, also surprising consensus which was expecting a 0.2% increase. Ex-auto sales got a lift from building materials, furniture, clothing, sporting goods, and non-store retailers, which dwarfed declining receipts at gasoline stations and electronics stores.

Weekly jobless claims data for the week of November 8th showed initial claims rising to 290K (from an unrevised 278K in the prior week). The more reliable 4-week moving average rose to 285K, albeit still relatively low. Continuing claims for the prior week rose 36K to 2.39 million.

The National Federation of independent business index (NFIB) rose to 96.1 in October (from 95.3 in the prior month). Businesses were more upbeat about the sales outlook. Intentions to hire and increase capital spending were also up a bit.

The preliminary estimate for November’s Michigan consumer sentiment index came in at 89.4, the highest since July 2007. Consumers felt more confident about the economic outlook (sub-index jumping to 80.6), while the index relating to current conditions rose to 103.

World – In China, October data showed retail sales and industrial production growing on a year-on-year basis by 11.5% and 7.7% respectively. The eurozone’s GDP grew just 0.8% annualized in Q3, or +0.2% unannualized. Of the fourteen countries that reported quarterly growth rates (out of 18 eurozone members), eleven showed expanding output, two printed negative growth and one was flat, namely Austria. Those posting output gains were Germany (+0.1%), France (+0.3%), Spain (+0.5%), Portugal (+0.2%), the Netherlands (+0.2%), Belgium (+0.2%), Finland (+0.2%), Greece (+0.7%), Estonia (+0.2%), Latvia (+0.4%) and Slovakia (+0.6%), all in unannualized terms. In contrast, output declined in Italy (- 0.1%), and Cyprus (-0.4%).

Note that the eurozone’s GDP is still 2.2% below its 2008Q1 peak, or 4.6% below peak when excluding Germany. The weak Q3 results, in all likelihood impacted by ongoing structural problems and geopolitical uncertainty, reinforce our long held view that the eurozone’s real GDP will grow less than 1% this year.