Heading into the final quarter of 2009, leading economic indicators on both sides of the border appear to be sending a similar message.

As noted in a previous Snapshot (#73), the outlook for the U.S. is considerably stronger than it was just two months ago, a view reinforced by the latest Conference Board U.S. Index of Leading Indicators, which in August recorded its fifth consecutive monthly increase.

In Canada, the most recent data releases have all been stronger than expected, including manufacturing sales, wholesale sales, housing starts and employment.

In addition to these current measures of economic activity, the more forward-looking Statistics Canada Composite Leading Index for August jumped by 1.1%, its largest monthly increase in seven years.

This increase was broad-based, the result of increases in eight of the 10 components used to derive the series. This strength suggests that the pattern of economic recovery coming out of recession will not be as subdued as many had expected.

During the remainder of the year and into 2010, domestic demand should continue to strengthen due to a combination of record low interest rates and an unprecedented increase in government spending, accompanied by rising consumer and investor confidence.

At the same time, the improving health of the U.S. economy in particular, and the global economy in general, should contribute to a steady strengthening in demand for Canada’s exports of manufactured goods and commodities.

The third major contributor to growth over the near term is likely to be a rebound in inventory investment following a sharp drop in the first half of the year.

Given the severity of the recent downturn, persistently high rates of unemployment, a still-quite-restrictive lending climate, and the threat of a global trade war, the current outlook for the Canadian economy is still fragile.

These concerns appear to be somewhat mitigated, however, by the relative success of the more globally co-ordinated approach taken to deal with the financial crisis and the ensuing contraction in global growth.