So long, dark clouds

Sometimes it seems that the economic outlook turns on a dime. A strong U.S. employment report late last week suddenly blew away some of the dark clouds hanging over that country and boosted Canada's prospects, too.

Reflecting the improved outlook in our key export market, the Canadian dollar briefly touched a three-year high just below 1.04 U.S.

Gloomsters had been in the ascendant until just recently, perhaps understandably. After all, high oil prices -and the risk of still higher ones amid continuing turmoil in oil-producing countries -are a good enough reason for wariness.

Add to that a potentially crippled Japanese economy that could hamper industrial production in North America, as well as a renewed downdraft in the devastated U.S. housing market, and there's plenty to worry about.

But it's now clear that if you look at the trend in U.S. job creation, that country probably has enough resilience to ride right over a certain number of speed bumps.

What's even nicer on this side of the border, the job report suggests that Canada's powerful economic growth in recent months will probably continue for a while.

This happy phenomenon has been built largely on a surge in exports, driven largely by U.S. demand. A recent example would be the 80-per-cent profit gain just announced by Montrealbased aerospace and masstransit giant Bombardier Inc.

An even bigger beneficiary than Quebec's aerospace industry is the auto sector in Ontario, where shipments are skyrocketing, also driven mostly by U.S. sales.

After a period in which Western Canada's resource industry has been a star performer, the rebound in U.S. demand for manufactured exports should help to keep Canada's economic growth a little more balanced, said Paul Ferley, assistant chief economist with the Royal Bank.

An underlying reason for such optimism is that it's becoming clear that the U.S. job recovery is finally developing some legs.

While some local governments in the U.S. are still laying off small numbers of workers, this seems to be tapering off. Meanwhile, the far bigger impact of privatesector hiring has rocketed ahead since February, producing a total of 470,000 jobs -the biggest two-month gain since the boom year of 2006.

With unemployment having plunged by a full percentage point over the past four months, there's not much question that job growth in the U.S. is not only sustainable, but speeding up, said Ferley. That creates the likelihood of eventual improvement in the one area of U.S. economic performance that's still negative: housing. As long as employment continues to expand at a healthy rate, the rising incomes of consumers should boost demand in a housing market that's now bargain-priced.

Even with average wages rising only slowly, gains in the number of wage-earners have already lifted total payroll outlays to their pre-recession peak, notes Stefane Marion, chief economist at the National Bank.

Of course, there are still potential speed bumps ahead. A new jump in oil prices could squeeze consumer spending, for example. But an economy, like a bicycle, tends to become more stable as it moves forward more rapidly. The increasing momentum that's finally become apparent in the U.S. economy seems to suggest that it has the stability to power through such shocks, said Nigel Gault, chief U.S. economist with IHS Global Insight.

And this momentum could well increase as time goes on, believe several forecasters.

Ferley said the Royal Bank forecast is for job growth to keep increasing in the coming months. This should boost the pace of consumer spending growth - which accounts for about two-thirds of all U.S. economic growth -to a higher level.