Source: The Canadian Press

The Canadian economy appears poised to record a strong rebound after fresh data showed consumers are not nearly as dormant as once thought.

Friday’s 0.5% spike in retail sales, the first significant increase since February and far better than the consensus call of a further 0.1% drop, completes the picture on the economy for August.

Economists are now virtually certain that the month will not repeat July’s shocker, when the economy contracted for the first time in almost a year.

And they go further, saying August will likely be the strongest month of economic growth since March, with a 0.3% advance after July’s 0.1% drop and several previous months of flat readings.

“It fits into a picture that points to quite a strong August gross domestic product (report),” said Derek Holt, vice-president of economics with Scotiabank.

“With what we know, it seems like the pessimism that swept through the synchronous downturn in a lot of indicators in July should be pushed off to the sidelines with the August GDP report,” which will be released at the end of this month, he added.

The retail sales numbers were the last of the major components that go into the calculation of economic growth for August, with no major releases planned next week.

Earlier, wholesale trade, manufacturing, net trade, and exports all came in stronger than many had expected. The only real weakness during the month came in home starts and hours worked.

Employment was also positive in August, with a gain of 36,000 jobs.

Holt noted that not all factors that contribute to the health or weakness of the economy are released prior to the GDP report — utilities, services and resource extraction data come out afterwards — so there remains some guesswork involved in forecasting the overall figure.

But the retail data was particularly welcome given that the sector had been soft for about half a year.

In its latest economic outlook released this week, the Bank of Canada said it expected household expenditures and the housing market to continue to decelerate, in part because Canadians are already carrying sky-high debt loads.

In the Friday report, Statistics Canada found retail sales gained in six subsectors representing 70% of the total, including new vehicle sales, furniture and purchases at gasoline stations.

CIBC chief economist Avery Shenfeld cautioned that a strong month should not be read as indicative of a trend, regardless of whether the number is high or low.

Using a longer lens, Shenfeld noted that Canada hasn’t had a good GDP advance since March, when the economy grew at a 0.6% clip from the previous month.

March’s reading was followed by a string of anemic numbers that sliced second-quarter growth to 2% annualized from the first quarter’s 5.8% — the fastest pace of growth in a decade.

“August looks like a 0.3, which if you could match it month after month would give you growth of 3 to 4%” Shenfeld said.

However, few expect Canada will keep growing at that rate for the rest of the year, given that the global and U.S. economies remain weak, excepting China. Nor are Canadian consumers likely to sustain the economy as they did during the recession.

The Bank of Canada expects that the economy grew 1.6% in the third quarter and will do a little better at 2.6% in the last three months of the year. It sees the economy expanding by 2.3% in 2011.

“We’re seeing generally soft economic numbers, but we’re not seeing any news that spells recession,” Shenfeld stressed.

In other news Friday, Statistics Canada reported that the country’s inflation rate rose two-tenths of a point to 1.9%, with underlying price pressures remaining subdued.

Bank of Montreal economist Douglas Porter said the combination of low inflation and tepid growth should restrain the Bank of Canada from raising interest rates until at least next spring.