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Canada has the upper hand: normally the follower, Canada is actually leading the U.S. economy in several important areas.

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THOUGH CANADA'S ECONOMY usually follows wherever the United States leads, America's neighbor to the north is taking a different, more prosperous path these days.

In 2006, GDP growth in the two countries was about the same at around 2.8 percent. This year Canada will hit 2.5 percent, while the United States dips to a 1.9 percent pace, estimates Aron Gampel, vice president and deputy chief economist with Scotiabank in Toronto.

"Our forecasts put Canada in the range of 2.0 to 2.5 percent over the next couple of years, while the U.S. will be at 1.5 to 2.0 percent," he says.

Canada is maintaining a faster growth rate primarily because business is booming in its resource--rich regions in the West. Mining, oil and gas exploration--and construction of the infrastructure to support those industries--is spurring demand for steel and other materials.

The United States, to the contrary, is more dependent on domestic demand. "The consumer component of the U.S. economy is softer than in recent memory because of the compounding effects of the housing crisis and the subprime financial difficulties, which are dragging consumer spending down to very lackluster levels," Gampel says.

Conditions in Ontario and Quebec, where most Canadian manufacturers are located, more closely resemble those in the United States.

Manufacturing in Canada is facing attack on three fronts: international competition, weakening U.S. trade and the exchange rate, Gampel explains.

While Canada certainly benefits from growing demand for its commodities in emerging nations around the globe, competition from low-cost...

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