Canada’s GDP rose 0.5% in February. The stronger-than-expected rise build on a 0.6% advance in January.

These were the largest back-to-back monthly increases since the end of 1999.

Most areas of the economy reported gains in February, but the manufacturing sector was the leader with a 2.3% jump.

“Canada’s economy continues to surprise on the upside,” says Bank of Montreal. “The strength in February was broadly based, with the previously beleaguered manufacturing sector leading the way. Driven by a 13.2% surge in motor vehicle output, manufacturing activity jumped 2.3% in the month. While about one-third of the gain in manufacturing stemmed from the auto sector, the rest of the gain was widespread.”

BMO says that strong demand for homes also led to higher output in many other areas, but retail sales were relatively weak.

RBC Financial calls the number, “another great performance on the heels of January’s standout gains”. It says, “The picture is one of a sharply rebounding economy, with a resurgent factory sector and a booming housing market leading the charge.” Nevertheless, it questions the economy’s ability to sustain this pace.

“Even with clear signs of a Q2 slowdown emerging in the U.S., this solid domestic GDP growth will suggest to the Bank of Canada that tightening is the right course,” concludes BMO Nesbitt Burns.

CIBC World Markets says that it now sees first quarter GDP on pace for roughly 5.5% growth, “a result in the same league as last week’s blowout growth figure in the U.S. Meanwhile, rising industrial product prices are supportive for manufacturing profitability, helping to restore positive year-over-year growth in TSE 300 operating earnings by the third quarter of the year.”

“More than a mere vindication of its recent rate hike, the strong growth backdrop is likely to bias the Bank of Canada towards another quarter-point hike come early June,” says CIBC. “However, with recent manufacturing gains largely tied to a turn in the US inventory cycle, Dodge will be reluctant to move too far ahead of the Fed.”

BMO also says that the data should encourage the Bank of Canada to continue easing up on the monetary gas pedal. “Overnight rates are expected to rise 25 basis points at the June 4 fixed announcement date, and to rise a further 100 basis points in the second half of the year and 150 basis points next year.”