Manufacturers are feeling more optimistic about their business prospects but some clouds still linger, Statistics Canada said Friday.

Expectations for both production and employment prospects for the third quarter of this year were higher. About 23% of manufacturers said they intended to increase production in the July through September period while 13% thought they’d decrease output.

That’s an improvement over the mood of the troubled sector during April, StatsCan’s last survey of the sector.

Manufacturing firms were also feeling upbeat about the levels of unfilled orders they must meet as well orders they expect to come, the agency said.

About 21% of firms said they had a higher than normal backlog of orders but that was almost completely offset by 18% with lower than normal backlog. Still, this marked the first positive balance since early 2000, StatsCan said.

Some uncertainty still lingers. StatsCan said producers in the primary metals, fabricated metal products and machinery industries remain worried about steel shortages, higher prices and increasing exports of scrap metal to China.

Carl Gomez, economist with RBC Financial Group, said on balance, Friday’s report suggests that conditions in the manufacturing sector are modestly improving, but certainly not accelerating.

“As such, the Bank of Canada will not be spooked by this report into hurrying to tighten monetary conditions,” Gomez said in a report. “We continue to believe that the first hike will come in October, dependent on the data of course, with only a slight risk of an earlier hike in September. ”

Sherry Cooper, cheif economist at BMO Nesbitt Burns Inc., said the report was another indication that the Canadian economy is turning the corner and headed back into solid growth territory. But she said the Canada’s manufacturing sector still lags that in the U.S. “Canadian firms have adjusted to the lofty loonie, but they haven’t been able to completely avoid its dampening impact,” Cooper said in a report.

StatsCan surveyed almost 4,000 manufacturers in the first two weeks of July as part of a regular study of the industry’s outlook.