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The Weekly Bottom Line
May 8, 2009
HIGHLIGHTS
• Economic data showing signs of improvement.
• Good news on the job front – Canada creates jobs
in April and U.S. losses are slightly better than
expected.
• U.S. stress test results are in, markets react posi-
tively.
After a long winter of dismal economic news, markets
this week continued to warm up to signs of spring. And
while uncertainty remains, the release of the U.S. stress
test gave hope that the worst of the shocks to the financial
system may be behind us. The rally was also aided by sev-
eral leading economic indicators continuing to point in the
right direction. In Canada, the Canadian job market de-
cided to take a month off from the recession and created a
pleasantly surprising 35,900 jobs in April. In the United
States, jobs continued to be shed but on the bright side, the
pace of declines appears to be slowing.
I’m my own boss now…
After five months of significant losses, April yielded a
nice surprise for the Canadian job market – a positive
number! 39,500 jobs were created in the month, putting a
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May 6, 2009 - TD HPI – An Update
May 5, 2009 - U.S. ISM Non-Manufacturing Index
May 5, 2009 - Crash Avoidance: Toronto Condo Market
Pulling Off A Turbulent Landing
May 4, 2009 - Will Guarding Against Deflation Now Lead
to an Inflation Problem in the Future?
The Weekly Bottom Line
NET JOB GAINS/LOSSES - CANADA & U.S.
200
Thousands
100
0
-100
-200
-300
U.S.
-400 Canada
-500
-600
-700
-800
Apr.08 Jun.08 Aug.08 Oct.08 Dec.08 Feb.09 Apr.09
Source: Statistics Canada, Bureau of Labor Statistics
halt to the upward march of the unemployment rate at
8.0%. Compared to consensus expectations for 50,000 job
losses, the result was nothing short of astounding. None-
theless, while we hate to throw cold water on such good
news, the details of the report did not give quite the same
cause for celebration. The primary source of the job gains
was self-employment, which swelled in ranks by 37,000.
Self-employment is actually quite countercyclical and tends
to move in the opposite direction of private employment,
especially during recessions. In periods of economic weak-
ness, it is not a stretch of the imagination that a fair number
of the newly self-employed are those that are making the
best out of a lousy situation. Private-sector employment
on the other hand, continued to decline in April, falling by
10,400 jobs. Since the start of the recession, Canada has
shed 2.9% of its private work-force. While April’s gains
on the overall job front were a nice surprise, Canada’s
economy still faces an up hill battle and we have likely not
seen the last of the job shedding.
Is that a glimmer of light at the end of the tunnel?
In the U.S. you had to dig a bit deeper to find the good
1 May 8, 2009

news in the job market. April continued to see job losses,
with a net 539,000 shed from non-farm payrolls and the
unemployment rate rising to 8.9% from 8.5%. But on the
bright side, the pace of job loss declined, which is a nice
change. Compared to an average of 680,000 job losses
over the past five months, April’s number was a consider-
able improvement. Unfortunately, as the case with Canada,
the details were less encouraging and show just how en-
trenched the economic downturn has become. Once again,
job losses were split evenly between the goods producing
(-270,000) and services producing sectors (-269,000), even
while a jump in government hiring in anticipation of the
2010 Census helped to stem the services sector bleeding.
As one of the first indicators of the condition of the U.S.
economy in the second quarter of the year – April’s job
report shows that we still have some way to go before we
can declare an end to this recession. But with another data
point showing upward movement in the second derivative,
the job report does give credence to our forecast for a
recovery starting to take shape in the final quarter of 2009.
For more on leading indicators of recovery please see our
report (U.S. Recovery Has Legs To Stand On).
U.S. housing sector showing signs of life but vital
signs still critical…
While data on U.S. employment capped off the week,
the week kicked off with data on pending home sales - a
leading indicator for U.S. existing home sales. Pending
home sales beat expectations, increasing by 3.2% in March.
Conditions in the housing market remain ground zero for
an economic recovery and even secondary indicators like
pending home sales are watched with interest. The dy-
namic in the housing market will continue to be a tug-of-
war between upstart demand fueled by increased
affordability and rising foreclosures stemming from under-
water mortgages and worsened economic conditions. This
dynamic will likely play out differently throughout the coun-
try. In the West, where pending home sales rose 8.5%
month-over-month, the worst of the foreclosure crisis ap-
pears to be in the rear-view and significant price correc-
tion has buoyed new demand. In the Northeast, economic
conditions have held up better than in other regions of the
country, but the significant glut of supply means prices have
a way to go before excess inventories can be drawn down.
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In the South, the legacy of poor lending practices will con-
tinue to weigh on the market and an increase in homeown-
ers with negative home equity will fuel foreclosures. Fi-
nally, in the Midwest, while affordability remains favorable,
labour market deterioration and negative equity will con-
tinue to be a drag on the market. (For more please see our
report U.S. Housing Market – Fishing for the Bottom.)
All stressed out
Perhaps even more than the economic data, the big-
gest news story out this week was the results of the much
anticipated U.S. stress test of financial institutions. Under
the stress test, U.S. regulators were attempting to gauge
how much capital U.S. banks would need in the case of a
worse than expected economic scenario. Under the as-
sumptions of the stress test, U.S. real GDP would decline
by 3.3% in 2009 (compared to consensus of -2.0%), fol-
lowed by a +0.5% growth in 2010 (from +2.1%); the U.S.
unemployment rate would rise to 10.3% by 2010 (com-
pared to 8.8%), and home prices would fall 22% in 2009
and 7% in 2010. Once applying these assumptions, regula-
tors found that commercial banks still need to raise a fur-
ther $75 billion in common capital in order to absorb ex-
pected losses.
The benefit of the stress test is that simply by decreas-
ing uncertainty over the health of the banks, the wheels of
credit creation may be able to start spinning again. The
situation that the Fed and the Treasury are trying to avoid
is one in which uncertainty over the viability of the banking
system keeps banks from engaging in their primary busi-
ness – lending to households and businesses. In that sense,
increasing transparency should help to avoid a worst-case
scenario from playing out. Even so, risks remain on the
horizon. The U.S. stress test scenario is not far off our
own base case economic forecast. While the economic
data does support our forecast for recovery, this too is con-
tingent on banks being confident enough to expand their
balance sheets by issuing loans and taking on more risk. If
loan losses are worse than expected, the danger is that
credit will remain choked off, forestalling an economic re-
covery and making it harder, once again, for banks to raise
the required capital.
James Marple, Economist
416-982-2557
2 May 8, 2009
 www.td.com/economics

UPCOMING KEY ECONOMIC RELEASES

Canadian International Trade - March
CANADIAN INTERNATIONAL MERCHANDISE TRADE
Release Date: May 12/09
February Result: $0.1B Dollars (billions)
46
TD Forecast: $0.5B Exports
44
Consensus: $0.5B Imports
42
The Canadian merchandise trade balance defied ex-
pectations in February and swung to a surplus (albeit a 40

small one) on the account of the double-digit surge in auto- 38

motive product exports to the U.S. The surge in auto-re- 36
lated demand was the result of U.S. carmakers switching
34
back on some of their production lines that were kept idle
32
during the prior few months. This improvement in the sur-
plus is likely to continue into April as the boost coming 30
Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09
from the first monthly rise in commodity prices (particu-
larly the double-digit jump in crude oil prices) in many Source: Statistics Canada/Haver Analytics

months is likely to offset the drop in auto-related export

demand resulting from the drop in U.S. motor vehicle pro- prices continues, we expect the merchandise trade surplus
duction during the month. As such, our call is for the Cana- to improve even further, though additional deficits may only
dian trade balance to eke out another surplus of $0.5B in be a hair’s breadth away.
March. In the months ahead, if the rebound in commodity Millan Mulraine 416-308-2911

U.S. Retail Sales - April U.S. RETAIL AND FOOD SERVICES SALES
Release Date: May 13/09
M/M % change
March Result: total -1.2% M/M; ex-autos -0.1% M/M 2.0
TD Forecast: total 0.3% M/M; ex-autos 0.7% M/M 1.5
Consensus: total -0.1% M/M; ex-autos 0.0% M/M 1.0
0.5
With a weak domestic economy and worsening labour 0.0

market conditions, the backdrop for U.S. households has -0.5

-1.0
not been this bad for many years. Yet, the recent tone of
-1.5
consumer spending activity has been surprisingly positive
-2.0
as personal consumption expenditures added favourably in -2.5 Total
economic activity in Q1 after two consecutive quarterly -3.0 Excl. Automotive Dealers
drops. Rising equity markets and stabilisation in the U.S. -3.5
financial sector have been important factors in bolstering -4.0
Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09
consumer confidence in recent months, and this rebound
Source: U.S. Department of Commerce/Haver Analytics
in confidence appear to be translating into increase spend-
ing. The momentum in consumer spending is likely to con-
tinue into April, with retail sales expected to eke out a 0.3% sales, sales excluding autos should rise by a more attrac-
M/M gain. Evidence of this upswing can be seen in the tive 0.7% M/M. Looking ahead, it appears possible that
strong same-store sales report, which showed a sizeable the rebound in retail sales could gather traction as the im-
1.9% M/M gain in April, while higher gasoline prices should pact of the massive fiscal stimulus and the improvement in
also inflation the headline number. Moreover, with the head- sentiment buoy consumer spending.
line number expected to be depressed by a drop in car Millan Mulraine 416-308-2911

The Weekly Bottom Line 3 May 8, 2009

 www.td.com/economics

U.S. Consumer Price Index - April U.S. CONSUMER PRICE INDEX (CPI)
Release Date: May 15/09
Y/Y % change Y/Y % change
April Result: core 0.2% M/M, 1.8% Y/Y; 6.0 6.0

all-items -0.1% M/M, -0.4% Y/Y

5.0 5.0
TD Forecast: core 0.1% M/M, 1.8% Y/Y;
all-items 0.0% M/M, -0.6% Y/Y 4.0 4.0

Consensus: core 0.1% M/M, 1.8% Y/Y; 3.0 3.0

all-items 0.0% M/M, -0.6% Y/Y
2.0 2.0
The era of U.S. consumer price deflation is now upon
1.0 All Items 1.0
us as the ongoing economic recession and deteriorating All Items ex Food & Energy
labour market conditions continue to weaken the bargain- 0.0
0.0
0.0

ing power of retailers and labourer alike, thereby quench- -1.0 -1.0
ing the once raging inflationary flames. Indeed, in spite of Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09
the expected rise in energy and food prices during the Source: Bureau of Labor Statistics / Haver Analytics
month, we expect U.S. headline CPI to remain flat in April
as other factors are likely to provide a perfect offset these the coming months, as the U.S. economy continues to lan-
upward pressures. However, due to base effects, the pace guish in its most intense economic recession since the Great
of annual consumer price inflation should fall to -0.6% Y/ Depression, we expect consumer prices to remain soft and
Y. Core consumer prices are also expected to be soft on headline consumer price inflation to remain in deflationary
the month, rising by only 0.1% M/M (after three consecu- territory.
tive months of 0.2% M/M gains), with the annual pace of
Millan Mulraine 416-308-2911
core consumer price inflation remaining at 1.8% Y/Y. In

Canadian Manufacturing Shipments - March

Release Date: May 15/09
February Result: 2.2% M/M CANADIAN MANUFACTURING SHIPMENTS
TD Forecast: 1.0% M/M M/M % Change Seasonally Adjusted Ratio
Consensus: 1.0% M/M 6 1.70
Manufacturing Shipments
4 (left scale)
After six consecutive months of contraction, Cana- 1.60
2
dian manufacturing sector activity snapped back to life in
1.50
February on the back of the rebound in motor vehicle ship- 0
ments. This positive tone in manufacturing activity should -2 1.40
carry into April, with manufacturing sales expected to
-4
advance by a further 1.0% M/M. The key catalyst for the 1.30
gains is likely to be auto-related shipments, while higher -6

gasoline prices should also bolster shipments of petroleum -8 Inventory-to-Shipments

1.20

and coal products. Indeed, with preliminary data pointing Ratio (right scale)
-10 1.10
to a strong 6% M/M gain in new car sales during the Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09
month and Canadian motor vehicle production rising at a Source: Statistics Canada
double-digit pace, the risk to this call may be to the up-
side. Real shipments, however, are expected to be weak
lar and weak U.S. appetite for Canadian products dampens
as some of the gains are likely to be the result of higher
activity in the sector.
prices. In the future, we expect Canadian manufacturing
activity to remain soft as the strengthening Canadian dol- Millan Mulraine 416-308-2911

The Weekly Bottom Line 4 May 8, 2009

 www.td.com/economics

RECENT KEY ECONOMIC INDICATORS

May 4 - May 8, 2009
Release Data for
Economic Indicators Units Current Prior
Date Period
Canada
May 6 Building Permits Mar. M/M % chg. 23.5 15.8 R
May 6 Ivey Purchasing Managers Index Mar. Index 53.7 43.2
May 8 Unemployment Rate Apr. Percent 8.0 8.0
May 8 Net Change in Employment Apr. Thousands 35.9 -61.3
May 8 Housing Starts Apr. Thousands 117.4 146.5 R
United States
May 4 Pending Home Sales Mar. M/M % chg. 3.2 2.0 R
May 4 Construction Spending Mar. M/M % chg. 0.3 -1.0 R
May 5 ABC Consumer Confidence 3-May Index -43 -45
May 6 ADP Employment Change Apr Thousands -491 -708.0 R
May 7 Non-farm productivity Q1-09 Q/Q % chg. 0.8 -0.6 R
May 7 Unit Labour Costs Q1-09 % change 3.3 5.7
May 7 Initial Jobless Claims 2-May Thousands 601 635 R
May 7 Continuing Claims 25-Apr Thousands 6351 6295 R
May 7 Consumer Credit Mar. US$, blns -11.1 -8.1 R
May 8 Change in Non-farm Payroll Mar. Thousands -539.0 -699.0 R
May 8 Unemployment Rate Mar. Percent 8.9 8.5
May 8 Change in Manufacturing Payrolls Mar. Thousands -149 -167 R
May 8 Average Hourly Earnings Mar. Y/Y % chg. 3.2 3.4
May 8 Wholesale Inventories Mar. M/M % chg. -1.6 -1.7 R
Source: Bloomberg, TD Economics

The Weekly Bottom Line 5 May 8, 2009

 www.td.com/economics

UPCOMING NORTH AMERICAN ECONOMIC CALENDAR

May 11-15, 2009
Release Data for Consensus
Economic Indicators Units Prior
Date Period Forecast
Canada
May 11 New Housing Price Index Mar. M/M % chg. -0.5 -0.7
May 12 International Merchandise Trade Mar. $C, blns 0.5 0.1
May 13 New Motor Vehicles Sales Mar. M/M % chg. 6.0 -2.2
May 15 Manufacturing Shipments Mar. M/M % chg. 1.0 2.2
United States
May 10 Richmond Fed President Lacker speaks at banking conference in Beijing
May 11 Federal Reserve Chairman Bernanke speaks on Stress Tests in Georgia
May 12 Trade Balance Mar. US$, blns -29.2 -26.0
May 12 Boston Fed President Rosengren speaks on risk management at Jekyll Island Panel
May 13 Import Price Index Apr. Y/Y % chg. -- -14.9
May 13 Advance Retail Sales Apr. M/M % chg. -0.1 -1.2
May 13 Retail Sales Less Auto Apr. M/M % chg. 0.0 -1.0
May 13 Business Inventories Mar. M/M % chg. -1.2 -1.3
May 13 Federal Reserve board member Duke to speak on banks' role in markets at Georgia conference
May 13 Atlanta Fed President Lockhart to make closing remarks at financial markets meeting
May 14 Producer Price Index (PPI) Apr. % change 0.1 -1.2
May 14 PPI excl. food and energy Apr. % change 0.1 0.0
May 14 Initial Jobless Claims 9-May. Thousands -- 601
May 15 CPI Apr. Y/Y % chg. -0.6 -0.4
May 15 CPI ex. Food and Energy Apr. Y/Y % chg. 1.8 1.8
May 15 Empire Manufacturing May % change -14.00 -14.65
May 15 Industrial Production Apr. % change -0.5 -1.5
May 15 Dallas Fed President Fisher speaks at Texas Bankers Association Conference
May 15 U. of Michigan Confidence May Index 65.0 65.1
Source: Bloomberg, TD Economics

The Weekly Bottom Line 6 May 8, 2009

 www.td.com/economics

G-7 ECONOMIC RELEASES AND EVENTS

Data for Consensus
Date Time* Country Economic Indicator/Event Units Last Period
Period Forecast

May 10 21:45 U.S. Richmond Fed President Lacker speaks at banking conference in Beijing

May 11 2:00 Japan Machine Tool Orders Apr. Y/Y % chg. -- -85.2
2:45 France Industrial Production Mar. Y/Y % chg. -14.6 -15.5
8:30 Canada New Housing Price Index Mar. M/M % chg. -0.5 -0.7
19:30 U.S. Federal Reserve Chairman Bernanke speaks on Stress Tests in Georgia

May 12 1:00 Japan Leading Index Mar. Index 77.0 75.0

1:00 Japan Coincident Index Mar. Index 85.8 86.0
2:00 Germany CPI Apr. Y/Y % chg. 0.7 0.5
4:30 U.K. Trade Balance Mar. £, mlns -3000 -3248
4:30 U.K. Industrial Production Mar. Y/Y % chg. -12.8 -12.5
8:30 Canada International Merchandise Trade Mar. $C, blns 0.5 0.1
8:30 U.S. Trade Balance Mar. US$, blns -29.2 -26.0
8:30 U.S. Boston Fed President Rosengren speaks on risk management at Jekyll Island Panel
19:50 Japan Current Account Total Mar. ¥, blns 513.5 673.4
19:50 Japan Trade Balance Mar. ¥, blns 137.1 202.1
19:50 Japan Money Supply M2 Apr. Y/Y % chg. 2.3 2.2

May 13 0:00 Japan Bankruptcies Apr. Y/Y % chg. -- 14.1

2:45 France Current Account Mar. Eur, blns -- -2.2
2:45 France CPI Apr. Y/Y % chg. 0.2 0.3
5:00 E.C. Industrial Production Mar. % change -1.0 -2.3
8:30 Canada New Motor Vehicles Sales Mar. M/M % chg. 6.0 -2.2
8:30 U.S. Import Price Index Apr. Y/Y % chg. -- -14.9
8:30 U.S. Advance Retail Sales Apr. M/M % chg. -0.1 -1.2
8:30 U.S. Retail Sales Less Auto Apr. M/M % chg. 0.0 -1.0
10:00 U.S. Business Inventories Mar. M/M % chg. -1.2 -1.3
10:30 U.S. Federal Reserve board member Duke to speak on banks' role in markets at Georgia conference
12:00 U.S. Atlanta Fed President Lockhart to make closing remarks at financial markets meeting

May 14 8:30 U.S. Producer Price Index (PPI) Apr. % change 0.1 -1.2
8:30 U.S. PPI excl. food and energy Apr. % change 0.1 0.0
8:30 U.S. Initial Jobless Claims 9-May. Thousands -- 601
18:45 NZ Retail Sales Mar. M/M % chg. -- 0.2

May 15 2:00 Germany GDP (s.a.) Q1-P Q/Q % chg. -3.0 -2.1
2:45 France GDP (s.a.) Q1-P Q/Q % chg. -1.3 -1.1
5:00 E.C. GDP (s.a.) Q1-A Q/Q % chg. -2.0 -1.6
5:00 E.C. Euro-Zone CPI Apr. Y/Y % chg. 0.6 0.6
5:00 E.C. Euro-Zone CPI - Core Apr. Y/Y % chg. 1.6 1.5
8:30 Canada Manufacturing Shipments Mar. M/M % chg. 1.0 2.2
8:30 U.S. CPI Apr. Y/Y % chg. -0.6 -0.4
8:30 U.S. CPI ex. Food and Energy Apr. Y/Y % chg. 1.8 1.8
8:30 U.S. Empire Manufacturing May % change -14.00 -14.65
9:15 U.S. Industrial Production Apr. % change -0.5 -1.5
9:15 U.S. Dallas Fed President Fisher speaks at Texas Bankers Association Conference
10:00 U.S. U. of Michigan Confidence May Index 65.0 65.1
* Eastern Standard Time; Sources: Bloomberg, TD Economics

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are not spokespersons for TD Bank Financial Group with respect to its business and affairs. The information contained in this report has been drawn from
sources believed to be reliable, but is not guaranteed to be accurate or complete. The report contains economic analysis and views, including about
future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and
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The Weekly Bottom Line 7 May 8, 2009