By James Langton

(February 22 – 13:30 ET) – After a series of progressively gloomier economic reports today’s strong retail sales numbers, have economists scratching their heads.

Retail sales posted a better-than-expected 0.9% gain in December, compared to a just 0.1% gain in the U.S. The numbers seem to reinforce the view that Canada is weathering the U.S. slowdown better than the U.S.

“This solid result all but locks in GDP growth of just over 3% for the fourth quarter (to be reported next Wednesday), while it now appears that U.S. GDP will be revised down to 1%, or less, for the quarter,” says BMO Nesbitt Burns.

How will the Bank of Canada react to signs of continuing economic growth? TD Bank economists conclude that, “This does not change our view that the Bank of Canada will move again to cut interest rates at its next meeting on March 6, as the risks to the Canadian economy are building with every sour economic report coming out of the U.S.” It cites the signs of weakness in the labour market and higher energy prices as evidence that the Canadian economy is still at risk of a major slowdown.

BMO is a little more bullish, “The healthy advance in retail sales is additional evidence that the Canadian economy is faring better than its U.S. counterpart, especially for domestic demand. It also adds weight to the view that the Bank of Canada will remain cautious in its easing steps.”

Over at CIBC World Markets, uncertainty remains the order of the day.”The Bank of Canada has focused its attention on potential weakness in manufacturing and exports, but the economic risks of a less-enthusiastic consumer in the months ahead should not be downplayed,” CIBC says. It notes that , ” The outlook for the March 6 Bank rate announcement is far from crystal clear. However, today’s retail strength combined with yesterday’s blowout trade number could give Governor Dodge the cover he needs to deliver another cautious 25 basis point cut.”
-IE Staff