TORONTO - Traders looking for reassurance that the economic revival is on track will focus on key data this week concerning growth in Canada and the state of the American manufacturing sector.

The July reading on Canadian gross domestic product comes out on Thursday while the widely watched U.S. Institute for Supply Management's manufacturing index will be released Friday. Both will serve as curtain-raisers for the September employment reports for Canada and the U.S. expected on Oct. 8.

The TSX finished last week little changed while the Dow industrials and S&P 500 chalked up solid gains as the latest U.S. economic indicator pointed to moderate growth this winter and the latest durable goods orders, excepting transportation, came in much better than expected.

Expectations for Canadian growth are modest as the U.S. economy and much of the rest of the world have faltered in recent months.

"It certainly looks like the Canadian economy is in a bit of a soft patch here," said John Johnston, chief strategist at the Harbour Group at RBC Dominion Securities.

"The economy has been growing pretty steadily but it's downshifting and we're going through a slowdown. That's what we've been seeing in the U.S. and it's like the law of gravity for now that if the U.S. slows, Canada is going to slow too — and that's exactly what is happening."

RBC Economics forecasts that GDP slipped by 0.1 per cent during July. That would follow a 0.2 per cent gain in June, a 0.1 per cent rise in May and a flat reading in April.

Overall, the economy grew at an annualized rate of two per cent in the second quarter, down from a pace of 5.8 per cent in the January to March period.

The slowing reflects increasing pessimism on the part of the consumer. Late last week, research marketing firm TNS Canada said its consumer confidence index dropped 2.3 percentage points during September. The showing came on the heels of four straight months of retail sales declines.

Also, the July GDP report will reflect the start of the Harmonized Sales Tax regime in Ontario and British Columbia.

"So you got some weaker spending numbers in July because people probably bought stuff in June to beat the tax increase so the Canadian economy is being buffeted by some temporary policies that are shifting around the timing of spending," said Johnston.

However, Johnston said that it would be a mistake to assume that the country is ready to slip back into recession.

"Despite some disappointing numbers, the reality is that it looks like the evidence continues to suggest slowdown, not double dip recession certainly for the global economy and the latest stream of information from the U.S. is kind of also slowdown, not double dip," he said.

"And if the world and the U.S. are slowing down, not double dip, then that's what Canada is going to get too."

Johnston also observed that a poor GDP showing on Thursday could give the Bank of Canada a reason to call a temporary halt to raising interest rates.

But Johnston said it is the ISM report in the U.S. that will most affect stock markets this week since "the ISM is one of those key numbers that's very timely, doesn't get revised, and a lot of equity strategists use that to benchmark the cycle."

The September manufacturing report from the ISM is expected to show the sector still expanding but at a slower rate than August.

"I would think so given the general tone of slowing, some decline is likely," said Johnston.

Economists expect the index to come in at 54.5, compared to the 56.3 reading in August.

Meanwhile, indexes in Toronto and particularly New York are preparing to exit September with gains, no mean feat for a month which is historically the worst trading period of the year.

Johnston pointed out that the month got off to a positive start after U.S. Federal Reserve chairman Ben Bernanke delivered some much-needed reassurance on Aug. 27.

"Bernanke came out at the Fed meeting in Jackson Hole, Wyo. and said 'We have additional tools at our disposal, and we're prepared to use them to prevent deflation and to prevent the economy from slowing too sharply'," he said.

"And there was a noticeable change (and) we've had a good run since then."