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Cold weather has housing starts below consensus

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Plagued by cool weather, housing starts plunged 11% in October to an annual pace of 1.6 million from a 16-year high of 1.81 million in September. October's 1.6 million annual rate was well below consensus for a 1.723 million rate. The 11% decline was the sharpest drop in nearly nine years.

October's decline has housing starts at their lowest level since April, but an identical match to the 2001 1.603 million units started.

The falloff in October was especially severe in starts of new large apartment buildings, which fell 31% to 221,000, the lowest in nearly six years.

Starts of new single-family homes fell a more modest 7% to an annual rate of 1.35 million, well above the 2001 level of 1.27 million.

Starts fell sharply in three of the four regions in October. Starts in the West rose modestly.

Other more forward-looking numbers in the report were more bullish, however. New building permits rose about 2% to an annual rate of 1.76 million from 1.73 million in September.

Economists figure new construction will remain relatively healthy in coming months, since low mortgage rates and real estate's investment potential are keeping home sales near record levels.

The homebuilders' monthly market index rose to a two-year high in November, due to strong sales, brisk traffic of buyers and optimistic expectations about sales.

The housing starts data are subject to large revisions and sampling errors. For example, the government says it is relatively confident that starts fell somewhere between 5.6% and 17.2% in October.

The government cautions that trends in starts can take up to five months to be established. The average for the past five months is 1.68 million starts, down from 1.71 million in September.

Economists point to colder weather as having had a negative impact on housing starts as evidenced by the builder permits numbers, which are not affected by weather. In October, building permits rose 1.7% to a 1.763 million annual rate, which was stronger than the 1.70 million consensus and indicative of a continued strong pace of housing activity.

Stocks in the news

Shares of Dow component and banking giant Citigroup (NYSE:C) $36.44 are seeing some modest upside action at $36.95 after UBS Warburg says their sum-of-the-parts analysis supports a $50 price target for Citigroup. While UBS believes the current valuation still incorporates overhang from ongoing regulatory, legal, and headline risks, their analysis results in a current fair value of $43.86 and a blended 12-month target value of $50.

Shares of SkyWest (NASDAQ:SKYW) $14.94 are falling $1.04, or 6.96% to $13.90 after the company deferred its September quarter 10-Q because the company's auditors have not completed the required Statement of Accounting Standards No. 71 review. KPMG has determined that certain revenue and expenses may have been inaccurately allocated among interim and fiscal year periods beginning in the quarterly period ended Sept 30, 2001 and continuing through the quarterly period ended Sept 30, 2002. The primary adjustment identified consists of approx $7.3 million of maintenance expense.

Dow component Hewlett Packard (NYSE:HPQ) $16.55 is seeing Thomas Weisel trimming its 2003 estimates ahead of tonight's earnings report, with the firm reducing 2003 estimates to $1.13 from $1.21 (consensus $1.16) as the firm mentions a cautious update from HPQ at Comdex and dissatisfaction from distributors.

Siebel Systems (NASDAQ:SEBL) $7.68 are trading down 38 cents at $7.30 after a Bloomberg report, citing court documents filed by Teachers' Retirement System of Louisiana. Since 1999, Siebel has failed to record about $22.2 million in expenses for stock options awarded to Tom Siebel and President Paul Wahl that had exercise prices below the market price on the date of grant, the pension fund said in an amended lawsuit filed November 8. The pension fund contends Siebel knew at the time the filings were "materially false" because the company hadn't accounted for the expenses. In an e-mailed statement, SEBL called any claims of inaccurate certifications with the SEC absurd and without basis in fact.

Stock futures have been below fair value levels this morning and continue to paint a modestly lower open. S&P futures (sp02z) trade down 2.6 points at 895.60, NASDAQ futures (nd02z) are off 1.5 points and Dow futures (dj02z) are lower by 40 points at 8,445.

Fair value for the S&P 500 today is $0.16. That price will not change during the session. HL Camp & Company has their computers set for program buying at $1.08 and set for selling at $-1.58. Fair value for the NASDAQ-100 today is $1.60.

Jeff Bailey

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