Canadian GDP for July surprised on the upside, thanks to strong U.S. growth, but new U.S. data continues to cloud the recovery story.

“The U.S. economy seems to have stepped onto some shaky ground in September,” says RBC Financial Group economist Allan Seychuk. “While it is widely believed that the economy will gallop to growth of around 5% in Q3, several indicators are now suggesting parts of the economy are stumbling along behind.”

First, the Chicago Purchasing Managers’ Index plunged from 58.9 to 51.2. Economists anticipated a slide to 57, but nothing close to what happened. Production, new orders and employment all declined.

“While the report reflects regional conditions in the Chicago area it has potentially serious implications if it is mirrored in other data,” Seychuk said in report. “Additionally, the employment index suggests downside risk to the market forecast of a small 25,000-job loss in September, perhaps on the order of August’s 94,000 decline.”

Also, the Conference Board’s index of consumer confidence dropped by more than expected in September, falling to 76.8 from 81.7 in August. Economists had called for a drop to the 80.5 level. Both the present situation index and expectations index declined, Seychuk said.

“The risk is that consumer behaviour starts to mimic consumer attitudes. Fortunately, an interesting facet of the economy is that consumers often say one thing and do another. Hopefully that continues, but if consumers are getting rattled by the ongoing job losses they will likely scale back spending, and that will have a negative impact on the budding recovery in business spending.”

BMO Nesbitt Burns Inc. said that in addition to the headline weakness in the confidence data, the employment survey conducted as part of that report moved to a new level of weakness.

“Jobs plentiful dropped to a pathetic 10% reading while jobs hard to get rose to 35.3%,” chief economist Sherry Cooper said in a report. “As well, buying plans slumped across the board.”

“While we would not get too excited, these data are just the right stuff to further trends already underway in financial markets. Whispers about Fed easing are sure to follow,” Cooper said.