The Markit Canada Manufacturing Purchasing Managers' index (PMI), a measure of manufacturing business conditions, rose to a seasonally adjusted 51.8 last month from 51.5 in November. A reading above 50 shows growth in the sector.
While the figures pointed to only a modest improvement in business conditions, it was a better end to the year than the sector saw in 2015 when the fallout from the oil price crash put the index in contraction territory.
"Canada's manufacturing sector ended the year on a much stronger footing than it started," said Tim Moore, senior economist at survey compilers IHS Markit.
The new orders gauge increased to 52.6 from 52.2, its highest level since December 2014. Although new export orders rose only slightly to 50.9 from 50.6, it suggested exports were still seeing a rebound after declines over the third quarter, Markit said.
But input prices rose to the highest level in nearly two-and-a-half years at 60.2 from 59.7 as the Canadian dollar declined and commodity prices rose, putting pressure on companies' operating margins.
(Reporting by Leah Schnurr, Editing by Chizu Nomiyama)
