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Canadian factory sales climbed 2.5 per cent to $53.7-billion in July.Fred Thornhill/Reuters

It took six long years, but Canada's long-suffering manufacturing sector has finally undone the damage the Great Recession inflicted on its sales.

Riding its strongest monthly surge in three years, manufacturing sales hit a record $53.7-billion in July, eclipsing the previous high set in July, 2008, just before the financial crisis and recession took hold. The economic slump devastated Canada's manufacturers, slashing sales by nearly 30 per cent.

On a seasonally adjusted basis, sales were up 2.5 per cent in July from June, far above economists' consensus estimate of 1.1 per cent and the biggest month-to-month increase since July, 2011. Statistics Canada said that on a constant-dollar basis, sales were up 2.8 per cent in July from June – meaning the month's strong performance was due to increased volumes of shipments, rather than higher prices.

Motor vehicle sales surged 11.6 per cent in the month, accounting for more than 40 per cent of July's gain. Aerospace and primary metals also saw strong sales increases. Sales were up in 16 of 21 major sectors, representing 56 per cent of Canada's manufacturing output, Statscan said. Of the five sectors reporting month-over-month sales declines, the biggest was in food manufacturing, down 1.4 per cent.

On a year-over-year basis, sales were up 8.2 per cent in current dollars, and 5.6 per cent on a volume basis – the fastest pace of growth in more than two years.

"Canadian factories are clearly benefiting from the acceleration in economic activity [and hence demand for Canadian exports] in the U.S.," said Krishen Rangasamy, senior economist at National Bank of Canada. "Real shipments grew at an annualized pace of 10.5 per cent in the second quarter, the best since 2011, and based on July's hot results, it seems that factories replicated the performance in the third quarter."

One sign that the strength has continued beyond July was the pace of new orders, which rose a solid 4.3 per cent in July from June, the biggest increase in five months, mostly stemming from transportation equipment and primary metals. Unfilled orders rose 0.6 per cent, while inventories edged up just 0.1 per cent. The inventory-to-sales ratio fell to 1.33, a two-year low – implying that manufacturers may soon need to step up their production to meet rising demand.

Royal Bank of Canada economist Nathan Janzen cautioned that the July strength may not have carried over to August – and may not imply that the pickup in manufacturing has substantially boosted Canada's economic growth pace over the summer months.

"Much of the monthly increase in the volume of sales in July reflected a likely transitory surge in auto sales, related to difficulties seasonally adjusting the data around the typical summer production shutdowns in the sector," he wrote in a research note. "Early indications suggest much of the July auto sales strength was retraced in August."

But Toronto-Dominion Bank economist Brian DePratto said the July data still point to growing momentum in manufacturing.

"At face value, it may be tempting to dismiss the strong month due to one-time factors in Ontario's automotive manufacturing sector. However, the forward looking components of the report suggest that this may be rash: A drop in the stock-to-sales ratio, alongside the strong rise in new orders, suggests underlying strength in demand for manufactured goods."

While the manufacturing sector's eclipsing of its prerecession sales levels was certainly an encouraging sign, the sector still has a long way to go to regain all it lost in the deep economic downturn. Employment in the sector remains more than 250,000 below its prerecession level, and is down 30,000 in the past year, despite the sector's apparent upturn.

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