Source: The Canadian Press

The Canadian economy surged to the strongest growth in eight months in November, regaining momentum lost when it stalled at the end of last summer.

The country’s gross domestic product pulled ahead by a stronger-than-expected 0.4% in November — the best month since March — and the second straight gain following a setback in September.

“It looks like the economy has snapped off its losing streak and started to gather a little momentum,” economist Doug Porter of BMO Capital Markets said.

The move still leaves Canada on track for a fairly tepid fourth quarter for 2010, in part due to the weak handoff from September.

Most analysts now say the Bank of Canada was prescient with its prediction earlier in January that the last three months of 2010 will see a modest 2.3% advance, about a full point less than in the U.S.

There were other reasons to feel some encouragement about the near-term future. The U.S. reported Monday that consumers increased spending by 0.7% in December, the fastest pace in a decade and sixth straight monthly advance.

And the U.S. Federal Reserve said its survey showed a dramatic hike in demand for commercial and industrial loans, suggesting firms there were reinvesting.

Both indicators are positive for Canadian firms, who have been waiting the better part of a year for both U.S. companies and consumers to re-start their engines.

At an event near Toronto, Finance Minister Jim Flaherty said the mood at the just completed World Economic Forum in Switzerland was “cautiously positive” and called on Canadian businesses to show optimism.

He said he has detected “some hesitancy” among firms to commit to investments during pre-budged consultations the past few months.

“We really do need the private sector to step up to the plate and to be bold, invest, hire, be confident in the future of the Canadian economy, which has one of the most brilliant economic futures in the world.”

Until businesses have confidence, “we’re going to have a challenge with respect to unemployment numbers,” he said.

Canada got some bad news on the jobs front last week when Statistics Canada revised down the number of jobs created since the recovery by about 67,000, leaving the economy still shy of where it stood prior to the recession.

NDP Leader Jack Layton noted in the Commons that many of the jobs that have been created have been of lower paying and part-time.

A key test for the Canadian economy comes after March when almost all the federal stimulus spending meant to buck up activity during the downturn ends, leaving the private sector to pick up the slack.

The November data shows there are still some key soft spots in the economy. The battered manufacturing sector, which is having to cope with a strong loonie and weak world markets, fell a hard 0.8%. The agency said part of the decline reflected temporary plant shutdowns for retooling in the motor vehicle assembly industry and shift reductions in the auto parts business.

Construction fell 0.4%, reflecting the general slowdown in Canada’s housing market.

Scotiabank economists said while the monthly gross domestic product performance was encouraging, it doesn’t change the overall outlook for Canada. It will require a strong December to meet the Bank of Canada forecast for the fourth quarter, something that is now more likely.

Still, the recovery has yet to show the kind of strength that would make bank governor Mark Carney uncomfortable with the current low interest rate stance, they added.

“We therefore expect no Bank of Canada implications attached to this report, since at a minimum it does nothing to alter the BoC from the path it laid out in the January (forecast),” wrote Derek Holt and Gorica Djeric in a note to clients.

The central bank has kept interest rates unchanged since last September, and most economists are expecting Carney to also remain on the sidelines at the next announcement date on March 1.

That’s partly because any move to raise the policy rate above one per cent by the Canadian bank, while its U.S. counterpart stays at virtual zero, would further boost the loonie to the detriment of manufacturers.

The loonie rose almost half a cent to 100.37 cents U.S. in early trading Monday following the report, but lost all the gains and more later over new concerns about stability in the Middle East. It closed down 0.04 to 99.85 cents U.S.

The gross domestic product gains in November were fairly spread out, although the services sector did better — 0.5% — than goods producing industries — 0.2%.

Wholesale trade rose 1.5% and retail trade 1.4%, while the finance and insurance sector increased 0.7%. There was also a widespread bump in the home resale market, leading to a 7.6% rise in the output of real-estate agents and brokers.