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Recent U.S. data – the pivotal market for Canadian exports, which are widely looked upon to lead Canada’s economic recovery this business cycle – suggest that demand is accelerating again.DARRYL DYCK/The Globe and Mail

The first thing to know about Canada's latest GDP figures is that the economy isn't as bad as what we've just seen. The second is that it's not as good as what we're about to see. But in the somewhere-in-between, we're starting to see more glimmers of light than clouds of darkness.

The pronounced contraction of the Canadian economy in the second quarter of this year is, unquestionably, dreadful. Real gross domestic product shrank at a 1.6-per-cent annualized rate, Statistics Canada reported Wednesday – the worst quarterly downturn since the Great Recession.

But it's dreadful with an asterisk. If it hadn't been for this spring's devastating wildfire in Alberta – which shuttered great swaths of the province's oil sands, one of the country's biggest industries – the rest of the economy actually eked out a small gain in the quarter. A very big natural disaster temporarily masked an otherwise much more benign economic trend.

With the fire out of the way, Statscan's numbers show the economy in June surged 0.6 per cent – equivalent to a torrid 7.2-per-cent annualized pace. Canada hasn't seen a month bigger than that in nearly five years.

Of course, we were really just refilling the hole dug in May, when the economy contracted by a similar amount. But it's notable that the post-fire rebound had only just begun in June. Non-conventional oil output (read oil sands) was still 10 per cent below its pre-wildfire pace, on a seasonally adjusted basis, suggesting that subsequent data releases will contain more of the recovery. Economists project that Canada's GDP will expand at between 3 and 3.5 per cent, annualized, in the third quarter, which would be the fastest pace in two years.

But just as the wildfire-related slowdown wasn't a realistic reflection of the economy's underlying health, neither is the emerging third-quarter bounce-back. Frankly, the broad economic growth data over the next few months aren't going to be particularly useful in gauging the true economic trend. The truth will be buried in the details.

Let's not sugarcoat it: Even setting aside the wildfire's impact on the energy sector, the Canadian economy was more or less flat in the second quarter. Goods exports slumped. Manufacturing stumbled. Consumer spending was tame. Business investment remained weak. But the June data provide some cause for optimism. Industrial production and manufacturing rebounded smartly. Durable goods output was strong. Wholesale trade picked up.

Recent data out of the United States – the pivotal market for Canadian exports, which are widely looked upon to lead Canada's economic recovery this business cycle – suggest that demand is accelerating again. Industrial output also grew sharply in July, and capacity utilization hit a nine-month high – underlying the growing need for businesses to invest in expanding their capacity after a cautious first half of the year.

Durable goods orders surged in July, suggesting that, indeed, businesses are loosening their purse strings. The U.S. Conference Board's consumer confidence index hit an 11-month high in August, implying continued strong consumer spending in the months ahead.

At home, the Canadian economy has some meaningful government stimulus coming its way. Ottawa started issuing the first cheques under its expanded Canada Child Benefit in late July, injecting monthly cash into lower- and middle-income families that should boost household consumption. And the government has been slower than many people expected to get the funds flowing under its ambitious infrastructure investment program; the trickle of spending so far could become a torrent later in the year. Then there's the massive rebuilding project in Fort McMurray, Alta., which promises to provide a steady diet for the region's construction sector for many months to come.

Ultimately, though, what will probably matter more than anything else is how Canada's labour market emerges from all of this. There's no escaping that job creation and wage growth in this country have been sluggish this year. Until and unless things like the U.S. growth and the fiscal stimulus translate into consistent healthier job and wage growth, the underlying trend for the Canadian economy will be no better than lukewarm. If you're going to obsess over any economic numbers in the coming months, you might want to set aside the GDP reports and bury your head in the employment data.

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