Manufacturing sales totalled $49.5 billion for the month, better than economists had expected, with Ontario leading the way.
"We're still awaiting the July results from wholesalers and retailers, but the bounce back in manufacturing suggests that a rebound in monthly real GDP growth is on track after a flood/strike plagued June," Bank of Montreal senior economist Robert Kavcic said.
The economy took a 0.5 per cent nose dive in June as it was hit by the floods in Alberta and a construction strike in Quebec. The drop was the biggest monthly step back since the recession and dragged down quarterly growth to 1.7 per cent.
However, Statistics Canada reported Tuesday that manufacturing sales picked up in July to total $49.5 billion as gains were recorded in 15 of the 21 industries tracked and six provinces.
Sales of durable goods rose 2.1 per cent to $24.8 billion mostly due to higher sales in the miscellaneous manufacturing category, fabricated metal products, and wood product industries.
Non-durable goods sales were up 1.2 per cent to $24.6 billion, largely as a result of an increase in the petroleum and coal product industry.
Constant dollar manufacturing sales were up 1.1 per cent, indicating that most of the overall increase was volume-based.
However, economist David Madani of Capital Economics was more tempered in his reading of the data.
"Overall, the sluggishness of manufacturing sales volumes continue to reflect weak merchandise exports and still cautious domestic business investment," Madani wrote in a report.
"Unfortunately, with U.S. producers continuing to steal market share, it may be some time before Canadian manufacturing sales ever surpass pre-recession levels."
The growth was strongest in Ontario, where manufacturing sales rose 3.2 per cent to $23.1 billion — the highest level for the province since June 2012. Alberta was also among the gaining provinces, with sales up 2.1 per cent to $6.3 billion.
Quebec was among the provinces that saw an overall decline, with total sales down 0.2 per cent to $11.2 billion, due to weakness in the aerospace sector.
Statistics Canada also noted that New Brunswick's sales dropped by 10.1 per cent to $1.5 billion, mostly due to lower manufacturer sales of non-durable goods.
In an updated outlook released Tuesday, the Royal Bank said it expected the economy to pick up in the third quarter as rebuilding of flood damaged areas in Alberta and the end of a construction workers strike in Quebec are expected to boost growth.
Despite the improvement, however, Royal Bank chief economist Craig Wright said business investment spending and exports are expected to remain hesitant.
"For the global economy and maybe in particular for Canada's economy, if it weren't for bad luck we'd have no luck at all," he said.
The updated outlook by the Royal Bank puts the economy growing at 3.4 per cent for the third quarter, compared with a forecast in June for a gain of 2.9 per cent.
The more positive outlook comes as worries about a new financial crisis in Europe and a hard landing for the Chinese economy recede and fears about the U.S. slipping back into a recession diminish.
However, Wright said those risks have been replaced by others, including the ongoing conflict in Syria and the upcoming debates in the U.S. over its debt ceiling.