U.S. economic data came in generally more positive this morning. But Canadian economists remain cautious about economic recovery.

Retail sales rose 0.4% in November following a mere 0.1% gain in October. Bank of Montreal says that the 0.5% gain in sales excluding autos is more impressive.

TD Bank is cautious about the significance of the data. “With Thanksgiving being particularly late this year, the advance report of U.S. retail sales in November does not provide hard evidence on holiday spending, but the news of a solid gain last month does suggest that the worst fears of dismal sales this holiday season are overblown.”

But there is unlikely to be much to cheer about,” TD concludes. “Autos sales are likely to continue weakening in the near term. Ex-auto sales will hold up better, but retail profit margins will remain tight. The current low levels of consumer confidence and poor labour market conditions are consistent with real personal expenditure growth of less than 1% in the fourth quarter. Given the fact that personal expenditure represents the bulk of GDP, the meagre consumer spending growth will slow overall U.S. economic growth to below 1% in the final quarter of 2002.”

RBC Financial Group economists are also cautious on the sales numbers. “The longer consumers keep spending, the more time the business sector has to get comfortable with the economic outlook and resume expansion. But time is definitely running out as the consumer can1t carry the ball forever.”

“Don1t get too excited about Q4 consumer spending,” says CIBC World Markets. “Because of the poor base – spending in September was miles below the Q3 average – even a real consumption gain of 0.5% in November and December would barely put the
quarterly growth rate above 1%.”

RBC notes that weighing against strong retail sales, initial unemployment claims shot up to 441,000 last week, which was way above expectations and way above the previous week1s total of 358,000. But BMO says that the data is reportedly distorted by seasonal adjustment problems given the later-than-usual US Thanksgiving holiday. “Markets keyed on the more positive retail sales report this morning, seeing it as further indication that momentum was building in the U.S. recovery.”