April 2010

OECD: Canada to lead G7 growth

TABLE OF CONTENTS  According to the Organisation for Economic Co-operation and Development
(OECD), recent indicators point to a continued recovery of the world
economy.
OECD: Canada to lead G7 growth 1
 Financial conditions have improved on the back of narrowing money market
Highlights 2
spreads, and buoyant corporate bond and equity markets.
The Canadian economy 2
 Lending conditions have eased considerably. Despite their improved capital
The U.S. economy 3 positions, banks nevertheless remain vulnerable to credit losses and exposed
Oil prices at highest level in 18 to interest-rate risk.
months 4  OECD countries have benefited through trade linkages from strong activity
Canadian dollar close to parity 4 growth in major emerging-market economies.
CFIB Business Barometer Index 4  Following a sharp narrowing during the recession, global imbalances have
Key indicators — Canada 5 widened somewhat as activity has picked up. Large external imbalances
remain within the euro area.
 The OECD pegged first-quarter growth in Canada at 6.2% on an annualized
basis and forecast the economy would expand by 4.5% in the second quarter,
the highest growth rate among the G7. Growth in the United States was
forecast at 2.4% in the first quarter and 2.3% in the second.
 The group cautioned, however, that overall growth among the G7 nations
would slow in the first two quarters as government stimulus programs run their
course and the jobs market remain fragile.
BDC’s Monthly Economic Letter is GDP Growth in %
produced by the Strategy and Enterprise (OECD Indicator Model for Q1 2010 Forecasts)
Risk Management department and is based 8
on a variety of public sources of economic 20-Nov-09
6
data. Reliance on and use of this informa- 02-Apr-10
tion is the reader's responsibility. 4

Copyright © 2010 2
Business Development Bank of Canada
0
1 800 INFO BDC
www.bdc.ca -2
USA JPN EURO* DEU FRA ITA GBR CAN G7
*Average of the 3 largest Euro-area countries (Germany, France, Italy)
Sources: Datastream, Markit Economics Limited, OECD calculations

PAGE 1 | BDC’S MONTHLY ECONOMIC LETTER | APRIL 2010

Canada
 Canadian economy adds 17,900 jobs in March
 Real GDP increases by 0.6% in January
 Housing starts rise to 196,700 units in February
 Retail sales rise by 0.7% in January
 Manufacturing shipments rise 2.4% in January
United States
 FOMC keeps fed funds rate unchanged at 0.00%-0.25%
 U.S. economy adds 162,000 jobs in March
 Manufacturing index rises to 59.6 in March
 Non-manufacturing index rises to 55.4 in March
 Housing starts rise to 591,000 units in January
 Retail sales rise by 0.3% in February
 Housing starts fall to 575,000 units in February
The Canadian economy
The Canadian economy adds 17,900 jobs in March
 The Canadian economy created 17,900 jobs in March,
following an increase of 20,900 jobs in February, but the
the unemployment rate remains at 8.2%. The job gains
point to a sustainable but not booming recovery, as net job
gains were in part-time employment (+32,200) while full-
time employment fell on the month (-14,200). March, job
gains were concentrated in goods-producing industries
(+39,800), mostly in the construction sector (+21,000),
followed by natural resources (+13,200). The service
producing sector lost 21,900 jobs with the largest losses
coming from other services (-30,000) and business,
building & other support services (-26.300). Despite the
March reversal, service employment is 45,000 above its
October 2008 level, while goods employment is still
286,000 below its previous peak. The labour report
underscores that the Canadian recovery is well entrenched
as the goods producing sector, the hardest hit in the
recession, is starting to contribute to job creation. Going
forward, manufacturing and transportation should benefit
significantly from the pick-up in the US economy and the
strong inventory rebuilding cycle that is unfolding.
Real GDP increases by 0.6% in January
 Real GDP increased by 0.6% in January after advancing
0.5% in December. Gains were broad-based. The goods-
producing sector advanced 1.3%, marking a fifth
consecutive monthly rise, with manufacturing industries
(+1.9%) and construction (+1.7%) as the top performing
industries in that sector. The services sector (+0.4%) also
posted robust growth, with strongest results observed in
wholesale trade (+2.9%), retail trade (+0.8%) and trans-
portation (+0.7%) while accommodation and food services
(-0.4%) lagged. It should be noted that services have now
risen 1.3% above their pre-recession peak, fully recovering
from the economic downturn. January’s monthly GDP
report indicates that the economic engines are firing on all
wheels, with the exception of continued weakness in
business investment. This suggests that Q1 growth will
come in strong, after which growth will moderate somewhat
PAGE 2 | BDC’S MONTHLY ECONOMIC LETTER | APRIL 2010
as the contribution from fiscal and monetary stimulus
dissipates and the expiry of the home renovation tax credit
curbs activity in the red-hot residential real-estate sector.
Housing starts rise to 196,700 units in February
 Housing starts rose to 196,700 units in February,
compared with 185,400 units in January. This growth is
mainly due to an increase of 14,000 units in multi-unit
housing in urban centres. The number of starts of single-
family dwellings in urban centres remained stable, at
89,000 units, while starts in rural areas were down by
3,500 units. Ontario stands out with 70,200 starts in
February, an upswing of 14,700 units compared with the
previous month. Significant increases were also observed
in Alberta and British Columbia. A decrease of 7,300 units
was recorded in Quebec, from 55,100 to 47,800.
February’s upswing in housing starts provides a very
optimistic outlook for residential construction in the first
quarter of 2010. However, residential investment will be
slow in the first quarter due to the expected pullback of
renovation following the end of government assistance
programs.
Retail sales rise by 0.7% in January
 Retail sales rose by 0.7% in January, the eighth increase
in the last nine months, as sales recovered to near pre-
crisis levels. Stripping out price effects, however, retail
sales rose by a more modest 0.1%. Strength was very
widespread, with six out of eight subsectors posting
gains. The largest contributors to the overall increase
were building & outdoor home supplies stores (+7.4%)
and home furnishing stores (+15.1%), which registered
the largest monthly increase on record. These gains were
likely due to the fact that January was the final month of
the federal Home Renovation Tax Credit. However, sales
of used cars (-6%) and new cars (-2.3%) were down as
Toyota halted sales on eight recalled models toward the
end of the month. Given the strong job gains in the last
few months, retail sales are set for another strong gain in
the first quarter of 2010.
Retail sales in volume back to pre-recession levels
($B, 2002 chained dollars)
33.4
33.0
32.6
32.2
31.8
31.4
2007 2008 2009 2010
Source: NBF Economy & Strategy
Manufacturing shipments rise by 2.4% in January
 Manufacturing shipments rose 2.4% in January, the fifth
monthly rise in a row, after an upwardly revised gain of
1.9% in December. January’s advance was widespread, as
17 of 21 industries reported gains, representing 76% of
manufacturing businesses. Primary metals (+8.5%)
contributed roughly a quarter of January’s advance. The
contribution of petroleum & coal products (+3.4%) was also
significant, although in this case it was price-induced.
Despite a 61% decline in the volatile aerospace products,
new orders edged up 0.2% in January to the highest level
since November 2008. Unfilled orders were up 0.4% or
1.7% if aerospace products were excluded. Inventory
levels remained unchanged in January. The inventory-to-
sales ratio declined for the seventh time in eight months,
dropping to 1.33 in January, the lowest level since Sep-
tember 2008. Overall, the data on orders is encouraging
and bodes well for the manufacturing sector in the coming
months.
The U.S. economy
FOMC keeps fed funds rate unchanged at 0.00%-0.25%
 As was widely expected, the Fed kept the wording and
tone of its interest rate decision statement largely
unchanged, and maintained its commitment to keeping
rates “exceptionally low” for an “extended period.” The fed
funds rate was also left unchanged. With the benign
inflation backdrop, the inflation assessments were left
virtually unchanged, and the Fed reiterated that inflation is
expected to remain “subdued for some time.” On the
economic assessment, however, the Fed noted that that
“economic activity has continued to strengthen and that
the labor market is stabilizing.” This is a slightly more
upbeat assessment than in the previous statement, which
noted that “the deterioration in the labor market is
abating.” The Fed also noted that business spending on
equipment and software has risen significantly. While
there is every indication that the Fed will maintain rates
low throughout 2010, there was continued dissension
from the Kansas City Fed President, suggesting that this
position is not unanimous among Committee members.
U.S. economy adds 162,000 jobs in March
 U.S. payrolls rose 162,000 in March, the largest increase
since March 2007. The unemployment rate remained
unchanged at 9.7%. Most of the gain was concentrated in
the private sector, where jobs rose 123,000, the third
increase in a row. The goods-producing sector reported a
first increase (+41,000) this cycle, an important turning
point for the U.S. labour market. The services sector
added 12,000, a total of 240,000 jobs since November
2009. More encouragingly, the gain in private sector jobs
in March was the most widespread since April 2006, with
60% of industries reporting an increase in job creation
(even construction added jobs for the first time in nearly
three years). With private sector job creation spreading to
most industries, the U.S. economic recovery is looking
increasingly more sustainable in 2010.
PAGE 3 | BDC’S MONTHLY ECONOMIC LETTER | APRIL 2010
U.S. Private Payrolls (1-month change), in ‘000s
400
4th positive number
200 in 5 months
0
-200
-400
-600
-800
2003 2004 2005 2006 2007 2008 2009
Source: NBF Economy & Strategy
Manufacturing index rises to 59.6 in March
 The pace of U.S. manufacturing sector growth rose nicely in
March, advancing to 59.6 from 56.5, its highest level since
July 2004. It should be noted that this is the eighth consecu-
tive month that the index has remained firmly above the 50-
threshold, suggesting that the U.S. manufacturing sector re-
mains quite buoyant. The largest increases were seen from
the inventory and price subindexes (both up 8.0 points to
55.3 and 75.0, respectively). New orders rose to 61.5 from
59.5 and new export orders advanced to 61.5 from 56.5. The
ISM Inventory Index reached its highest mark in 26 years.
With the manufacturing production index well in expansion
territory and an inventory rebuilding cycle firmly underway,
this ISM report points to continued economic growth in the
second quarter of 2010.
Non-manufacturing index rises to 55.4 in March
 The ISM non-manufacturing index increased by 2.4 points to
55.4 in March, reflecting growth for the fourth consecutive
month and adding evidence that the positive economic mo-
mentum is spreading to the rest of the economy. Indeed, of
the 18 industries included in the report, 14 noted an expan-
sion in activity in March. In March, strength was driven by
measures of demand, with new orders increasing by 7.3
points to 62.3, the highest reading since August 2005, and
the index measuring the backlog of orders increasing by 9.5
points to 55.5. As in the case of the ISM manufacturing in-
dex, the rebound in global trade remains a key driver of the
pick-up in economic activity, with the ISM non-manufacturing
new export orders index surging by 10.5 points to 57.5 in
March.
Retail sales rise by 0.3% in February
 U.S. retail sales shattered expectations in February with a
0.3% gain, the fifth increase in seven months. This perfor-
mance was remarkable given that the February figures were
negatively impacted by the blizzards that hit the U.S. east
coast. It should be noted that, excluding motor vehicles and
gasoline, retail spending surged 0.8%, the second largest
monthly increase in a year. Gains were widespread as ele-
ven of thirteen sub-sectors showed gains, with only motor
vehicle sales (-2.0%) and health & personal care (-0.7%) suf-
fering a decline. Despite the bad weather, solid gains were
registered in electronics (+3.7%), sporting goods (+1.2%)
and clothing (+0.6%). With the level of retail sales excluding
autos and gasoline being back near its pre-recession peak in
February, and job creation just beginning, retail sales will
pick up in the months ahead.
Housing starts fall to 575,000 units in February
 U.S. housing starts fell by 5.9% to 575,000 units in February.
The decline was larger than the market was expecting,
though the large revisions to prior months offset the decline
in February’s headline number. During the month single-
family construction was soft, declining by 0.6% following the
4.4% advance seen in January. The volatile multi-family
component of the report declined sharply, down 30.3% in
February. Compared to a year ago, starts are up for the third
consecutive month, rising by 0.2% year-over-year. Bad
weather contributed to the decline in starts. As the weather
improves, housing starts will rebound as delayed starts from
earlier months come back on line. The improving conditions
in the labour market will also help lift the U.S. housing mar-
ket, boosting the broader recovery.
Oil prices at highest level in 18 months
 Crude prices rose to $86.87 a barrel. Prices are over 70%
since April 2009 and at their highest level since Oct. 8 2008
when crude settled at $88.95, as economic reports in the
U.S. and the U.K. have indicated that a global economic re-
covery is underway.
$160
$120
SME business confidence at its highest in five years
 Confidence among small and mid-sized business owners
remains on the rise. CFIB’s Business Barometer Index rose
for the third consecutive month in March, reaching 69.9—its
highest level in five years.
 This level of optimism is consistent with a healthy sustained
economic growth rate of about 4%, which suggests Canada’s
strong economic rebound to date will continue.
 In a truly rare development, business confidence is highest in
the retail sector (72.9), followed closely by wholesale
(72.5)—suggesting that spurred by low interest rates, the
consumer economy is powering forward. At the same time,
despite a sprited loonie, manufacturers are near the top of
the list with 71.8 index score. Notably, and good news for the
western economies, optimism in the natural resources sector
has rebounded strongly from dismal levels of late last year.
 On the other side of the curve, however, CFIB is still seeing
lower than average levels of optimism among farmers and
the hospitality sector. Because these sectors are highly sea-
sonally dependent, it will be the mid part of the year that de-
fines their performance for 2010.
CFIB Business Barometer Index and GDP
QUARTERLY MONTHLY

$80

$40

$0 rGDP 3mnth-%ch-SAAR
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Index (0-100)*
Source: Global Insight

Canadian dollar close to parity Source: Canadian Federation of Independent Business

 The loonie is trading near parity with the U.S. dollar, after
weeks of better-than-expected economic data that fuelled
speculation of an interest rate hike from the Bank of Canada.
$1.10
* Index of 50 = equal balance of stronger and weaker business expectations. Note
that CFIB’s Business Barometer Index has been revised as of May 2009. The
Index is based on the same survey, but is now a weighted average of response
scores: 100 for stronger performance, 50 for same performance and 0 for weaker
performance.

$1.00
$0.90
$0.80
$0.70
$0.60
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Global Insight

PAGE 4 | BDC’S MONTHLY ECONOMIC LETTER | APRIL 2010

KEY INDICATORS - CANADA Historical 2009 Latest Forecast
2004 2005 2006 2007 2008 Q1 Q2 Q3 Q4 2010 2011
Real GDP (% growth) 3.1 3.0 2.9 2.5 0.4 -7.0 -3.5 0.9 5.0 5.0 2.9 3.2
Machinery and Equipment Expenditures (% growth) 9.3 14.1 10.5 4.4 0.5 -40.4 -15.9 22.8 -9.2 -9.2 3.4 6.1
Pre-Tax Corporate Profits (% growth) 17.1 10.9 5.1 4.1 5.7 -30.9 -43.0 -39.9 -14.8 -14.8 19.8 12.7
Industrial Production (% growth) 1.9 1.6 0.2 0.2 -4.2 -18.1 -14.5 -4.9 8.8 8.8 3.7 3.7
Industrial Product Prices (% growth) 3.2 1.5 2.3 1.6 4.3 1.8 2.8
Non-Residential Construction (% growth) 0.8 6.8 7.5 6.9 -2.7 -36.7 -22.0 -8.4 -8.5 -8.5
Housing Starts (' 000 units) 233 225 227 228 211 132 128 156 180 Feb. 197 178 181
Personal Expenditures (% growth) 3.4 3.7 4.1 4.6 3.0 -0.7 -0.6 0.0 2.7 2.8
Consumer Price (% growth) 1.8 2.2 2.0 2.1 2.4 1.2 0.1 -1.0 0.8 Feb. 1.6 1.8 2.2
Employment (% growth) 1.8 1.4 1.9 1.9 1.5 -5.9 -1.1 -0.1 1.3
Unemployment Rate (%) 7.2 6.8 6.3 6.0 6.2 7.8 8.4 8.5 8.4 Mar. 8.2 8.3 7.8
SMEs Confidence Index (CFIB) 68.4 66.4 67.3 67.2 56.1 42.3 64.2 64.2 66.2 Mar. 69.9
Manufacturers Confidence Index (CFIB) 70.4 68.3 66.4 64.5 52.7 38.8 64.4 64.4 66.4 Mar. 71.8
Credit Conditions (Bank of Canada)* -10.8 -16.5 -9.8 15.0 32.0 35.0 34.5 25.5 8.0 Dec. -12.0
Sources: Statistics Canada, Consensus Economics and Canadian Federation of Independent Business, Bank of Canada
*Business Outlook Survey, balance of opinion on tightened terms and conditions for obtaining financing compared with previous three months. Figures reflect
annual averages.

PAGE 5 | BDC’S MONTHLY ECONOMIC LETTER | APRIL 2010