Manufacturers' optimism waned in the last two quarters as order levels declined and production prospects weakened, Statistics Canada reported Friday.

The agency said its quarterly Business Conditions Survey, conducted in the first two weeks of October, found manufacturers were more guarded than in July due to continued labour shortages, coupled with pressures caused by the high Canadian dollar.

It found that 25 per cent of the 3,000 companies surveyed said they would increase production over the next three months, up three points from July.

However, this was largely offset by the 23 per cent of manufacturers who said they would decrease production, compared with 15 per cent in July.

Positive prospects were posted in Newfoundland and Labrador, Prince Edward Island, Nova Scotia, Ontario, Manitoba and Saskatchewan, while the remaining provinces were negative.

The number of manufacturers reporting a decline in orders received rose three points to 22 per cent, while those who said orders were increasing fell six points to 19 per cent.

About 64 per cent of respondents said they would maintain their current workforce, while 17 per cent indicated they expected to decrease employment in the fourth quarter of 2007.