WASHINGTON, DC—Housing starts fell in October due mainly to a drop in multifamily construction, the Commerce Department said Wednesday, with the month's overall tally of 1.06 million starts coming in below a Bloomberg consensus of 1.16 million. Yet economists are taking some encouragement from an uptick in permitting noted in Wednesday's monthly report.

Figures from the Commerce Department's Census Bureau show an overall drop of 1.8% year-over-year in residential construction starts, with single-family activity up 2.4% from the year-ago period and multifamily off 8.4%. The month-to-month decline was steeper at 11% overall and 25.5% for apartments; however, IHS Global Insights' Kristin Reynolds says the monthly declines were not statistically significant, and ITG Investment Research's Steve Blitz points to the month-to-month volatility in multifamily starts.

Of greater significance is a slowing Y-O-Y growth rate for the 12-month moving average in new apartment construction, says Blitz, chief economist at ITG. In particular, he cites the deterioration of growth on a three-month moving average basis; a slowdown in single-family growth is a more recent trend.

October's multifamily starts numbered 327,000 units on an annualized basis, down from 439,000 in September and from a monthly average of 418,000 in the prior six months, according to Blitz. Single-family starts reached an annualized 722,000 for October, and Blitz expects them to "hover" in the range of 700,000 to 750,000 for the foreseeable future.

"Hovering should keep the economy expanding, but it does nothing to close the gap between the economy that is and where the longer-term trend suggests the economy should be," he writes. "A good part of the gap can be traced to the inability of starts to get back to pre-recession levels, and there is ample reason to believe they won't."

That being said, Gennadiy Goldberg, US rates strategist at TD Securities LLC in New York City, told Bloomberg Wednesday, "Ongoing strength in permits is really a hint that you are going to get more construction." At IHS, US economist Reynolds notes that permits were up in October for both single-family and multifamily, although permitting in the apartment category is still off 6.2% from the year-ago period.

"Robust building permits point to continued progress in housing starts," according to Reynolds. "This is the first month that single-family building permits have been above the 700,000 mark since January 2008, and new homes for sale remain well below their long-term trend. We expect starts to rise to surpass a 1.3-million annualized rate in the second half of 2016 with single-family starts responsible for most of the gain."