www.td.

com/economics

TD Economics
The Weekly Bottom Line
May 1, 2009

HIGHLIGHTS
U.S. REAL GROSS DOMESTIC PRODUCT
• U.S. economy contracts 6.1% in Q1
Annualized Q/Q % change
• Canadian GDP slides 0.1% in February 7

• Chrysler files for bankruptcy 5

Potential
Growth 2.5%
Despite some of these so-called “green shoots” begin- 3
ning to appear south of the border, the U.S. economy re-
1
mains deep in the doldrums. Indeed, the first reading of
U.S. real GDP for the first quarter indicated that economic -1

activity contracted by a whopping 6.1% Q/Q annualized, -3

which followed the 6.3% Q/Q plunge seen during the fourth
-5
quarter of 2008. Based on this estimate, the drop in U.S.
real GDP from its peak is now 3.3%, which is the largest -7
Q1-06 Q3-06 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09
drop since 1958. While the weakness during the first quarter
stemmed largely from private domestic investments and a Source: Bureau of Economic Analysis/Haver Analytics
draw-down in inventories, consumer spending provided
some offset. In fact, consumption expanded for the first tended holiday discounting – before resuming the downtrend
time since the second quarter of 2008. But even with some again in March. This provides a weak handoff for the
signs of strength, it is difficult to put a positive spin on the second quarter, which will be likely exacerbated by a fur-
outlook for growth in the U.S. ther deterioration in the labour market.
Strength in consumption to be short-lived Following the retail sales report released earlier this
month, the personal income and spending report out this
Although consumer spending was positive in the first
week provided further evidence of the drop in spending.
quarter, this is not a trend that we expect to see continue in
Personal income was down 0.3% M/M in March, and up
the near term. The increase in consumption occurred dur-
by only 0.3% compared to year-ago levels. Personal
ing the first two months of the year – likely due to ex-
spending slid 0.2% on the month, as consumers limited
themselves to essential services. What’s more, the sav-
Recent TD Economics Research ings rate increased from 4.0% to 4.2% in March, suggest-
ing that consumers are watching their spending habits
May 1, 2009 - U.S. ISM Manufacturing Index
closely.
May 1, 2009 - The Outlook for Consumer Insolvency in
With respect to trade, the positive contribution from net
Canada
exports was not a good news story and highlights the weak-
April 30, 2009 - Canadian Real GDP
ness persisting in the domestic economy – with the con-
April 30, 2009 - Is Canada’s EI Program Adequate? traction in imports (-34%) outpacing the slide in exports (-
April 30, 2009 - U.S. Personal Income and Spending 30%). Given that the global economy is expected to dete-
April 29, 2009 - U.S. FOMC Interest Rate Decision riorate further, exports will likely continue to deteriorate
April 29, 2009 - U.S. Real GDP and weigh on economic growth in the near term.
April 28, 2009 - Priming the Fiscal Pump
Economic weakness to persist
April 27, 2009 - Canadian Bank Lending in March
As such, U.S. economic activity in Q2 will likely re-

The Weekly Bottom Line 1 May 1, 2009

 www.td.com/economics

main quite sluggish. The ISM manufacturing data out this

CANADA'S REAL GDP AT BASIC PRICES*
morning provided us with our first glimpse of Q2 data, and
while extending a three-month uptrend in April, remains M/M % change
0.8
extremely depressed. At 40.1, it is still well below the 50 0.6
threshold, implying that manufacturing activity is still con- 0.4
tracting. Given March’s weak handoff, the U.S. economy 0.2
is on track to shrink further in the second quarter, albeit at 0.0
a much slower pace than the last two quarters. -0.2
With first quarter GDP coming in much weaker than -0.4
expected, all eyes and ears turned to the Federal Reserve’s -0.6
interest rate announcement. While it was expected that -0.8
the Fed would leave rates unchanged – which it did – the -1.0
market was more interested in what the Fed had to say. -1.2
And on that front, there wasn’t a whole lot of new infor- Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09

mation contained in the accompanying communiqué. Mak- *Real GDP at basic prices in 2002 chained dollars
Source: Statistics Canada/Haver Analytics
ing no changes to the existing quantitative easing frame-
work, the Fed stated that it will “continue to evaluate the some large creditors, and securing a partnership with Ital-
timing and overall amounts of its purchases of securities in ian automaker Fiat, the inability to come to an agreement
light of the evolving economic outlook”. The Fed also noted with a group of lenders left Chrysler with only one option:
that the economic outlook has improved modestly since Chapter 11 bankruptcy.
the last meeting – with signs that the housing market may On the bright side, the successful negotiations with the
be stabilizing – however, further job losses, reduced hous- unions and Fiat helped the automaker sidestep a liquidation
ing wealth and credit constraints will keep economic activ- bankruptcy filing, thus allowing the company to maintain
ity under pressure for some time still. its operations. And while Chapter 11 bankruptcy was not
the preferred option, under court protection, Chrysler should
Canadian economy slides further in February
be able to rid itself of certain obligations and emerge as a
Switching to Canada, the picture is not much brighter. smaller and more cost competitive automaker – which in
The Canadian economy contracted by 0.1% M/M in Feb- turn should bring it back to profitability.
ruary, with output sitting at its lowest level in over two The Obama Administration has agreed to provide up to
years. And combined with January’s 0.7% contraction, it US$8 billion in loans to finance the restructuring for an 8%
appears as though the drop in economic activity in Canada stake in the new entity, while the Canadian and Ontario
during the first quarter was much sharper than originally governments agreed to provide US$2.4 billion (C$3.8 bil-
anticipated. In fact, assuming a flat performance in March, lion) in exchange for a 2% stake in the company and a
first quarter GDP is on track to slide by a massive 6.4% Q/ commitment to keep 20% of total production in Canada.
Q annualized – which would be the steepest quarterly drop At the present time, there are no plans for Chrysler Canada
on record. Moreover, with signs that domestic demand is to file for bankruptcy protection in Canada.
falling quite rapidly and export demand is still extremely
Although Chrysler was able to obtain government sup-
weak, economic activity in Canada will likely remain sub-
port – thereby avoiding liquidation – the automaker is not
dued for some time.
out of the woods just yet. With the U.S. economy ex-
History in the making pected to contract for at least another 2 quarters, unem-
Given the current economic environment and the vari- ployment likely to rise and credit conditions expected to
ous headwinds facing North American consumers, busi- improve only modestly, it is highly unlikely that we will see
nesses have been hit quite hard. And while several com- any uptick in sales this year. Moreover, the B-word may
panies have been unable to weather the storm, history was scare consumers off, despite warranty guarantees from
made this week in the auto sector, as Chrysler was the both the American and Canadian governments. Nonethe-
first major U.S. automaker to file for bankruptcy. After less, bankruptcy protection gives Chrysler the chance to
obtaining substantial concessions from labour unions and improve its financial position, and return to viability.
Dina Cover, Economist 416-982-2555

The Weekly Bottom Line 2 May 1, 2009

 www.td.com/economics

UPCOMING KEY ECONOMIC RELEASES

U.S. Nonfarm Payrolls - April
U.S. LABOUR MARKET
Release Date: May 8/09
Thousands of jobs %
March Result: -663K; unemployment rate 8.5% 9.0

TD Forecast: -530K; unemployment rate 8.8% 0

Consensus: -610K; unemployment rate 8.9% 8.0

The ongoing correction in the U.S. labour market has -200

7.0
been particular sharp, as businesses have slashed jobs left, Net Job
right and center in response to weakening economic con- -400 Change* (lhs)
6.0
ditions and slumping demand for their products. Notwith-
standing the weak economic backdrop, the pace of job -600 5.0
Unemployment
losses is likely to ease modestly in April as the 2010 Cen- Rate (rhs)
sus hiring moves into gear, with well over 100K census -800 4.0
workers likely to be added to payrolls during the month. Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09
As such, our call is for nonfarm payrolls to fall by a better- Seasonally-adjusted data; * Change in non-farm payrolls
Source: U.S. Deptartment of Labor/Haver Analytics
than-expected 530K, bringing the number of net job losses
since the turn in labour market conditions to well over 5.5 ing to outpace job creation, the unemployment rate should
million. As has been the case in the past, the losses are rise even further, climbing to 8.8% in April. Looking ahead,
likely to be evenly spread among the goods-producing and we expect the pace of contraction in U.S payrolls to re-
services-producing sectors, with the size of the govern- main relatively brisk, though further census hiring should
ment payrolls likely to balloon on account of the census partially offset some of the underlying weakness in the
hiring. Moreover, with the pace of job destruction continu- labour market.
Millan Mulraine 416-308-2911

Canadian Employment - April CANADA'S LABOUR MARKET

Release Date: May 8/09 % Thousands of jobs
8.5 140
March Result: -61.3K; unemployment rate 8.0%
TD Forecast: -60.0K; unemployment rate 8.3% 8.0 Net Job 100
Consensus: -50.0K; unemployment rate 8.3% Change
7.5 (right scale) 60

The Canadian labour market went in a free-fall in No- 7.0 20

vember last year as the Canadian economy slipped into its
first economic recession since the early 1990s. So far some 6.5 -20

350K positions have been eliminated from Canadian pay-

6.0 -60
rolls, and there is every indication that the elevated pace of
job losses will continue for some time. Indeed, given the 5.5 Unemployment Rate -100
ongoing restructuring in the manufacturing sector and the (left scale)
5.0 -140
steady flow of layoff announcements from other badly hit Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09
industries, we expect a further -60K jobs to be lost in April. Seasonally-adjusted data; Source: Statistics Canada/Haver Analytics
This is very close to the recent trend. The bulk of the job
losses should come from the goods-producing sector, with
rate is expected to rise to 8.3%. In the months ahead, given
the number of job losses in the construction and manufac-
the weak economic fundamentals, we expect the negative
turing sectors expected to remain high. The services-pro-
dynamics in the Canadian labour market to continue and
ducing sector should also post significant losses. Moreo-
the pace of job losses to remain brisk.
ver, with the weak economy continuing to limit the ability
of displaced workers to find new jobs, the unemployment Millan Mulraine 416-308-2911

The Weekly Bottom Line 3 May 1, 2009

 www.td.com/economics

Canadian Housing Starts - April CANADIAN HOUSING STARTS

Release Date: May 8/08 Thousands Thousands
250 150
March Result: 146.5K
TD Forecast: 135.0K 135
Consensus: 140.0K 225
Urban Multiples
(right scale) 120
After plunging for six straight months, Canadian hous-
200
ing starts rebounded sharply in March, on account of the
105
28% M/M gain in the volatile multi-units component. This
175
up-tick, however, is likely to be a one-month wonder as the
90
backdrop for Canadian households and homebuilders con-
tinue to sour. Indeed, with the economy remaining weak, 150
Total Starts 75
worsening labour market conditions damping demand, and (left scale)
tight financial market conditions continuing to stifle access 125 60
to credit, we expect Canadian homebuilding activity to Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09
moderate further. This much has been clear in the contin- Source: CMHC/Haver Analytics

ued fall in permit approvals, which have declined every

single month since last September. As such, our call is for
starts to fall to 135K. Both single-family and multi-family
unit construction should post declines. In the months ahead,
we expect starts to edge even lower, and remain in these
depressed territories for some time.

Millan Mulraine 416-308-2911

The Weekly Bottom Line 4 May 1, 2009

 www.td.com/economics

RECENT KEY ECONOMIC INDICATORS

April 27 - May 1, 2009
Release Data for
Economic Indicators Units Current Prior
Date Period
Canada
Apr. 30 Industrial Product Price Mar. M/M % chg. 0.3 0.5 R
Apr. 30 GDP Feb. M/M % chg. -0.1 -0.7
Apr. 30 Raw Materials Price Index Mar. M/M % chg. 12.1 1.6 R
United States
Apr. 28 Case-Shiller Home Price Feb. Index 143.1 146.3 R
Apr. 28 Consumer Confidence Apr. Index 39.2 26.9 R
Apr. 28 Richmond Fed Manufacturing Apr. Index -9 -20
Apr. 28 ABC Consumer Confidence 26 Apr. Index -45 -47
Apr. 29 GDP Q1 Q/Q % chg. -6.1 -6.3
Apr. 29 Personal Consumption Q1 Q/Q % chg. 2.2 -4.3
Apr. 29 GDP Price Index Q1 Q/Q % chg. 2.9 0.5
Apr. 29 Core Personal Consumption Expenditure Q1 Q/Q % chg. 1.5 0.9
Apr. 29 FOMC Interest Rate Decision Apr. 29 Percent 0.00-0.25 0.00-0.25
Apr. 30 Personal Income Mar. M/M % chg. -0.3 -0.2
Apr. 30 Personal Spending Mar. M/M % chg. -0.2 0.4 R
Apr. 30 Personal Consumption Expenditure Deflator Mar. Y/Y % chg. 0.6 0.9 R
Apr. 30 Core Personal Consumption Expenditure Mar. Y/Y % chg. 1.8 1.8
Apr. 30 Employment Cost Index Q1 Q/Q % chg. 0.3 0.6 R
Apr. 30 Initial Jobless Claims 25 Apr. Thousands 631 645 R
Apr. 30 Continuing Claims 18 Apr. Thousands 6271 6138 R
Apr. 30 Chicago Purchasing Managers Apr. Index 40.1 31.4
Apr. 30 NAPM Milwaukee Apr. Index 39.0 30.0
May 1 U. of Michigan Confidence Apr. Index 65.1 61.9
May 1 ISM Manufacturing Apr. Index 40.1 36.3
May 1 Factory Orders Mar. M/M % chg. -0.9 0.7 R
May 1 ISM Prices Paid Apr. Index 32.0 31.0
Source: Bloomberg, TD Economics

The Weekly Bottom Line 5 May 1, 2009

 www.td.com/economics

UPCOMING NORTH AMERICAN ECONOMIC CALENDAR

May 4-8, 2009
Release Data for Consensus
Economic Indicators Units Prior
Date Period Forecast
Canada
May 6 Building Permits Mar. M/M % chg. 2.5 -15.9
May 6 Ivey Purchasing Managers Index Mar. Index 40.5 43.2
May 6 Bank of Canada Governor Carney and Senior Deputy Governor Jenkins appear before the Senate Committee
on Banking, Trade and Commerce in Ottawa, ON
May 8 Unemployment Rate Apr. Percent 8.3 8.0
May 8 Net Change in Employment Apr. Thousands -50.0 -61.3
May 8 Housing Starts Apr. Thousands 140.0 146.5
United States
May 4 Pending Home Sales Mar. M/M % chg. 0.0 2.1
May 4 Construction Spending Mar. M/M % chg. -1.5 -0.9
May 4 Kansas City Fed President Hoenig speaks on Financial Crisis in New York
May 4 Richmond Fed President Lacker speaks on the economy in Charlottesville
May 5 ABC Consumer Confidence 3-May Index -- -45
May 5 Boston Fed President Rosengren speaks in Hong Kong
May 5 Fed Chairman Bernanke testifies before joint economic committee on the economic outlook
May 5 Minneapolis Fed President Stern speaks in Minneapolis
May 6 ADP Employment Change Apr Thousands -645 -742
May 6 Minneapolis Fed President Stern and FDIC Chairman Bair speak on financial regulation and moral
hazard before U.S. senate committee on banking, housing, and urban affairs
May 6 San Francisco Fed President Yellen speaks to Australian economists via satellite
May 7 Non-farm productivity Q1-09 Q/Q % chg. 0.9 -0.4
May 7 Unit Labour Costs Q1-09 % change 2.8 5.7
May 7 Initial Jobless Claims 2-May Thousands 635.0 631.0
May 7 Continuing Claims 39928 Thousands 6345.0 6271.0
May 7 Consumer Credit Mar. US$, blns -3.8 -7.5
May 7 Fed Chairman Bernanke speaks at annual Chicago Fed's annual banking conference via satellite
May 8 Change in Non-farm Payroll Mar. Thousands -610.0 -663.0
May 8 Unemployment Rate Mar. Percent 8.9 8.5
May 8 Change in Manufacturing Payrolls Mar. Thousands -159.0 -161.0
May 8 Average Hourly Earnings Mar. Y/Y % chg. 3.3 3.4
May 8 Wholesale Inventories Mar. M/M % chg. -1.0 -1.5
May 8 Richmond Fed President Lacker speaks on the economic outlook at the DC Chamber of Commerce
Source: Bloomberg, TD Economics

The Weekly Bottom Line 6 May 1, 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 4 2:00 Germany Retail Sales Mar. Y/Y % chg. 0.2 -0.2
10:00 U.S. Pending Home Sales Mar. M/M % chg. 0.0 2.1
10:00 U.S. Construction Spending Mar. M/M % chg. -1.5 -0.9
12:30 U.S. Kansas City Fed President Hoenig speaks on Financial Crisis in New York
14:00 U.S. Richmond Fed President Lacker speaks on the economy in Charlottesville

May 5 0:30 AU RBA Cash Target 5-May Cash Rate 3.00 3.00
4:30 U.K. Purchasing Managers Index Construction Apr Index 31.9 30.9
5:00 E.C. Producer Prices Index Mar. Y/Y % chg. -2.9 -1.8
6:45 U.S. Boston Fed President Rosengren speaks in Hong Kong
10:00 U.S. Fed Chairman Bernanke testifies before joint economic committee on the economic outlook
13:15 U.S. Minneapolis Fed President Stern speaks in Minneapolis
17:00 U.S. ABC Consumer Confidence 3-May Index -- -45
21:30 AU Trade Balance Mar. AUD, mlns 1,700.0 2,109.0
21:30 AU Retail Sales Mar. M/M % chg. 0.5 -2.0

May 6 5:00 E.C. Retail Sales Mar. Y/Y % chg. 0.1 -0.6
6:30 U.S. Minneapolis Fed President Stern and FDIC Chairman Bair speak on financial regulation and moral
hazard before U.S. senate committee on banking, housing, and urban affairs
8:15 U.S. ADP Employment Change Apr Thousands -645 -742
8:30 Canada Building Permits Mar. M/M % chg. 2.5 -15.9
10:00 Canada Ivey Purchasing Managers Index Mar. Index 40.5 43.2
16:00 Canada Bank of Canada Governor Carney and Senior Deputy Governor Jenkins appear before the Senate Committee
on Banking, Trade and Commerce in Ottawa, ON
17:30 U.S. San Francisco Fed President Yellen speaks to Australian economists via satellite
18:45 NZ Unemployment Rate Q1-09 % 5.3 4.7
19:50 Japan Monetary Base Apr. Y/Y % chg. -- 6.9
21:30 AU Unemployment Rate Apr. % 5.9 5.7

May 7 2:45 France Trade Balance Mar. Eur, blns -3.8 -4.1
6:00 Germany Factory Orders Mar. Y/Y % chg. -35.8 -38.2
7:00 U.K Bank of England Annouces Rate Decision -- Percent 0.50 0.50
7:45 E.C. European Central Bank Annouces Rate Decision -- Percent 1.00 1.25
8:30 U.S. Non-farm productivity Q1-09 Q/Q % chg. 0.9 -0.4
8:30 U.S. Unit Labour Costs Q1-09 % change 2.8 5.7
8:30 U.S. Initial Jobless Claims 2-May. Thousands 635 631
8:30 U.S. Continuing Claims 25-Apr. Thousands 6345 6271
9:30 U.S. Fed Chairman Bernanke speaks at annual Chicago Fed's annual banking conference via satellite
15:00 U.S. Consumer Credit Mar. US$, blns -3.8 -7.5
19:50 Japan Bank of Japan Monetary Policy meeting minutes for April 6-7th released
21:30 AU Reserve Bank Quarterly Monetary Policy statement released

May 8 2:00 Germany Trade Balance Mar. Eur, blns 8.0 8.7
2:00 Germany Current Account Mar. Eur, blns 7.0 5.6
4:30 U.K. Purchasing Price Index Input Apr. Y/Y % chg. -3.5 -0.4
4:30 U.K. Purchasing Price Index Output Apr. Y/Y % chg. 0.7 2.0
6:00 Germany Industrial Production Mar. Y/Y % chg. -20.9 -20.6
7:00 Canada Unemployment Rate Apr. Percent 8.3 8.0
7:00 Canada Net Change in Employment Apr. Thousands -50.0 -61.3
8:15 Canada Housing Starts Apr. Thousands 140.0 146.5
8:30 U.S. Change in Non-farm Payroll Mar. Thousands -610 -663
8:30 U.S. Unemployment Rate Mar. Percent 8.9 8.5
8:30 U.S. Change in Manufacturing Payrolls Mar. Thousands -159 -161
8:30 U.S. Average Hourly Earnings Mar. Y/Y % chg. 3.3 3.4
10:00 U.S. Wholesale Inventories Mar. M/M % chg. -1.0 -1.5
13:00 U.S. Richmond Fed President Lacker speaks on the economic outlook at the DC Chamber of Commerce
* Eastern Standard Time; Sources: Bloomberg, TD Economics

The Weekly Bottom Line 7 May 1, 2009

 www.td.com/economics

This report is provided by TD Economics for customers of TD Bank Financial Group. It is for information purposes only and may not
be appropriate for other purposes. The report does not provide material information about the business and affairs of TD Bank
Financial Group and the members of TD Economics 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
uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that
comprise TD Bank Financial Group are not liable for any errors or omissions in the information, analysis or views contained in this
report, or for any loss or damage suffered.

The Weekly Bottom Line 8 May 1, 2009