And on the American side they seem to be getting ready...but you should still apply as soon as possible. Right now, with the decrease in applications you'll have your new passport in weeks. With the few exceptions/alternatives (Children, Active Military, Native-American/ Enhanced Driver's License, Passport Card, Nexus, etc...) you'll need a passport to re-enter the country in three and a half months so I would apply as soon as you can to ensure you can still come to Canada this summer.
February 15, 2009
Update: Apply Now for Canadian and American Passports
If you haven't heard about the problems in Canada in 2007 relating to Passport Canada's inability to cope with the massive influx of applicants below is one opinion piece from the Vancouver Sun at the time. There's not much individuals can do when there is a massive backlog of applications...but you can apply now to beat the rush when almost everybody on both sides of the border will need a passport to travel across the International Boundary by land.