Manufacturers’ shipments unexpectedly rose 1.2% in September, building on gains of 0.6% and 1.1% in the previous two months.

Bank of Montreal reports that the sharp gain in September was led by the interest-sensitive industries. “Shipments of automobiles rose 3.5%, while sales of durable items relating to the housing industry also climbed briskly. As well, shipments of computers and electronic products jumped 10.8%, retracing a 7.6% decline in August. These gains were tempered by a 2.6% decline in sales of wood products,” it said.

“Canadian manufacturing shipments continue to show surprising spunk, even in the face of the recent slowdown in U.S. industry,” observed BMO Nesbitt Burns’ economists.

Tempering the more exciting results, numbers for new orders were weak, falling 1.2%, which is more or less in line with previous expectations. Unfilled orders fell 0.9% too, and have been down over the past three months. Inventories rose 0.3% in September. “However, because of the sharp increase in sales, the stock-to-shipments ratio edged lower to 1.41 from 1.42 in August. This is well below the nine-year high of 1.56 in October 2001, suggesting that lean inventories will encourage stronger production going forward,” noted BMO economists.

“The sharp gain in shipments suggests that Canada’s exports and balance of trade likely expanded in September (the trade report is due tomorrow). This suggests that trade added to economic activity in the third quarter, contributing to a 3 to 3.5% annualized gain in real GDP in the period,” offered BMO economists. “The solid performance of the Canadian economy likely warrants tighter monetary policy. However, the ongoing uncertainty about the outlook, relating to the uneven US recovery and geopolitical developments, suggests that the Bank of Canada will likely take a pass at the December 3 scheduled announcement date.”

BMO Nesbitt notes that, in a separate release, Statistics Canada reported that its leading indicator posted a moderate 0.2% advance for the third month in a row in October. “While a far cry from the hefty increases recorded earlier this year, the small steady gains suggest that the Canadian economy continues to chug along at a underlying growth rate of close to 3%,” said BMO economists.

“Canadian factory activity remains surprisingly healthy in the face of slower U.S. growth. However, there are plenty of signals that manufacturing will slow in the months ahead – the latest Business Conditions Survey, a dip in unfilled orders, and the U.S. pullback,” concluded BMO economists.