Canadian corporate profits continued their recovery in the second quarter, led by the financial sector, TD Economics reports. TD expects this trend to continue through the second half of the year.

In a new report, TD notes that the latest data from Statistics Canada shows that operating profits for Canadian corporations rose 2.6% in the second quarter, compared with the previous quarter. And, on a year-over-year basis, profits were up 6.8%, it says. “Corporate profit growth has accelerated over the first half of 2014, following an average annual gain of 4.4% last year,” it says.

The financial sector powered the second quarter rise, as profits rose 8.8% quarter over quarter in that industry. “The financial sector is recovering from three quarterly declines, and operating profits are still down 13.4% from year ago levels,” TD notes.

Excluding the financials, operating profits rose just 0.8% in the quarter, which TD says was mostly due to strong gains in construction and wholesale trade. Conversely, profits dropped in the oil and gas extraction industry, retail trade, and manufacturing. “Rising operating costs were a significant constraint to profitability for these sectors in the second quarter of this year, whereas revenues climbed to record levels,” TD says, noting that revenues in motor vehicle manufacturing reached their highest level since 2007. Overall, profits were reported higher in 13 of the 22 sectors surveyed.

“Corporate Canada appears to be benefiting from an improving Canadian and U.S. economy,” TD says. “While high operating costs held back operating profits in certain manufacturing industries in the second quarter, the broad-based strength in revenues is encouraging. Stable commodity prices, a pick-up in global economic growth and still low interest rates are likely to continue to boost profits over the rest of 2014.”

This, in turn, should help drive capital spending, and hiring, it suggests. “Improved profitability is likely to encourage businesses to spend on both capital outlays and hiring, helping to carry some of the recent economic momentum into the second half of this year,” it concludes.