Canadian retail sales rose 1.1% in January, spurring economists to raise their GDP projections and accelerate rate hike talk.

“This built further onto already strong gains in each of the previous two months of 1.4%. As a result, retail sales over the last three months are up an impressive 15.3%, at an annual rate, up sharply from a decline of 2.3% over the previous three-month period,” observes Bank of Montreal.

“This has been a great week for Canadian growth!” gushes BMO Nesbitt Burns. “Even though the motor vehicle dealerships were busy in January, chalking up a 1.1% acceleration in sales, autos were not the only story. Excluding car sales, retailers roared ahead 1.2% in the month, following a 0.7% rise in December. The strong performance marks the fourth consecutive heavy-duty rise in retail sales – following a one-month drop in September, sales have since snapped back at a very impressive 20% annual rate.”

RBC Financial Group economists say that the retail sales bounce “highlights how much better consumers feel about economic prospects as we put increasing distance between today and last fall’s slowdown. The release highlights how much more underlying strength exists in Canada’s domestic economy compared to the United States.”

“These good retail numbers, taken on top of several other positive indicators for the first months of the first quarter, point unambiguously in the direction of strong first-quarter GDP growth,” says RBC. “The risks, in our view, come later in the year when steadily rising interest rates put a damper on home and auto buying and take a bite out of related spending on goods and services, while slower corporate profit growth keeps a lid on investment spending.”

CIBC World Markets says that, with retail sales up 1.1% in real terms, and huge advances already reported for manufacturing and wholesaling, “January looks to be a banner month for real GDP, which could be up as much as 0.6%. That’s a huge head start for first quarter growth. While it’s very early in the quarter in terms of data available, the evidence at hand points to a solid 4% annualized real GDP gain in Q1.”

On the strength of today’s data, BMO has been prompted to revise up its outlook for overall GDP growth in the current quarter to 4.5%, more than a doubling the comparable Q4-growth rate of 2%.