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The Weekly Bottom Line TD Economicswww.td.com/economics

April 29, 2011

HIGHLIGHTS OF THE WEEK

• TheU.Seconomygrewata1.8%annualizedpaceduringthefirstquarter.Whiletheheadlinefigurewasdraggeddownbybroaddeclinesingovernmentspendingandrealestateconstruction,thedetailswereencouragingwithhealthygainsinconsumerspendingandbusinessinvestment.

• TheFederalReservemetthisweektodiscussmonetarypolicy.TherewerenomajorchangesfromtheFOMC,butChairmanBernankedidreiteratetheFed’sunwaveringcommitmenttomaintainingpricestability.

• Equitiescontinuedtomovehigher,andtheS&P500isnowapproachinga3-yearhigh.• Therisksandrewardsofultra-accommodativepolicywillstartchanginginthequartersahead,aninevitabilityinvestors

mustconsiderwhenmakingportfoliodecisions.

Current* WeekAgo52-WeekHigh

52-WeekLow

Stock Market IndexesS&P500 1,359 1,337 1,360 1,023 S&P/TSXComp. 13,893 13,972 14,271 11,093 DAX 7,503 7,295 7,503 5,670 FTSE100 6,070 6,018 6,091 4,806 Nikkei 9,850 9,682 11,057 8,605 Fixed Income YieldsU.S.10-yrTreasury 3.32 3.39 3.74 2.38Canada10-yrBond 3.23 3.29 3.66 2.69Germany10-yrBund 3.27 3.26 3.49 2.12UK10-yrGilt 3.44 3.53 3.95 2.83Japan10-yrBond 1.21 1.22 1.36 0.85Foreign Exchange Cross RatesC$(USDperCAD) 1.05 1.05 1.05 0.93Euro(USDperEUR) 1.48 1.46 1.48 1.19Pound(USDperGBP) 1.66 1.65 1.66 1.43Yen(JPYperUSD) 81.4 81.9 94.5 78.9Commodity Spot Prices**CrudeOil($US/bbl) 113.2 111.7 113.2 66.0NaturalGas($US/MMBtu) 4.39 4.33 5.17 3.18Copper($US/met.tonne) 9296.0 9681.5 10179.5 6067.8Gold($US/troyoz.) 1541.5 1506.9 1541.5 1161.6

THIS WEEK IN THE MARKETS

*asof10:00amonFriday,**Oil-WTI,Cushing,Nat.Gas-HenryHub,LA(Thursdaycloseprice),Copper-LMEGradeA,Gold-LondonGoldBullion;Source:Bloomberg

FederalReserve(FedFundsRate)BankofCanada(OvernightRate)EuropeanCentralBank(RefiRate)BankofEngland(RepoRate)BankofJapan(OvernightRate)Source:CentralBanks,HaverAnalytics

0.00%0.50%

0-0.25%1.00%1.25%

GLOBAL OFFICIAL POLICY RATE TARGETSCurrentTarget

US GDP: CONTRIBUTION TO GROWTH

-10

-8

-6

-4

-2

0

2

4

6

8

Mar-08 Mar-09 Mar-10 Mar-11

GovernmentNetExportsGrossInvestmentPCEGDP

Q/Q%Chg.,Annualized

Source:BEA.

Current Rate 2011 20124/29/2011 Q1 Q2F Q3F Q4F Q1F Q2F Q3F Q4F

FedFundsTargetRate(%) 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.252-yrGovt.BondYield(%) 0.63 0.82 0.95 1.15 1.30 1.65 2.05 2.30 2.6010-yrGovt.BondYield(%) 3.32 3.47 3.75 3.90 3.95 4.05 4.10 4.20 4.3030-yrGovt.BondYield(%) 4.41 4.51 4.90 5.10 5.15 5.15 5.10 5.00 5.00RealGDP(Q/Q%Chg,Annualized) 1.8(Q1) 1.8 3.7 3.5 3.0 2.9 2.8 2.9 3.1CPI(Y/Y%Chg.) 2.7(Mar-11) 2.1 3.1 3.3 3.2 2.5 2.1 1.9 2.0UnemploymentRate(%) 8.8(Mar-11) 8.9 8.8 8.7 8.5 8.4 8.3 8.1 8.0f:ForecastsasatApril2011.Financialforecastsareendofperiod.Source:Bloomberg,TDEconomics

TD ECONOMICS KEY FORECASTS

The Weekly Bottom LineApril 29, 2011

TDEconomicswww.td.com/economics

2

COME ONE, COME ALL, TO WITNESS THE STUPENDOUS, THE INCREDIBLE, BEN BERNANKE BALANCING ACT

This was a busy week on the economic calendar, but two items in particular captured headlines. First was the advanced Q1 GDP report. As we anticipated, the headline growth figure of 1.8% was disappointing. Behind this un-friendly number, however, the details of the report were fairly encouraging. Upward revisions meant that house-hold spending in Q1 was better than expected, expanding at its second highest pace since the recession ended. Also, strength in transportation and industrial goods led equipment and software growth to accelerate. Weakness came from the usual suspects. Broad based declines caused government spending to fall at its fastest rate since 2000. Meanwhile, residential and non-residential construction continued contracting. All an all, we caution reading too much into this report’s disappointing headline. During Q1, there was strength in all the right places, and there is every reason to think that growth will accelerate above 3% during Q2.

Markets were also tuned into the Fed’s policy meeting on Wednesday. This meeting grabbed more attention than usual because of rising inflation figures, and Chairman Bernanke’s inaugural quarterly public press conference. However, those looking for a meaningful shift in policy were disappointed, since the message was broadly un-changed from March. Still, there were some useful nuggets for economists to mull over. First, the Fed indicated that it has downgraded its economic forecast (as a result of the weak Q1 GDP release) and slightly upgraded its inflation forecast for 2011. Despite this, Bernanke emphasized that the Fed remains confident the recent buoyancy in inflation

is transitory and since medium term inflation expectations remain anchored, there is no need to tighten policy. He did, however, caveat this with some hawkish rhetoric, stating that if medium-term expectations become unhinged, there would be “no substitute for action.” The second useful nugget came when Bernanke explicitly stated that the Fed plans to reinvest the principal from maturing securities once QE2 ends in June. The Chairman indicated that once repurchases slowed or stop, it will be a clear signal that the Fed is moving towards a tighter policy stance.

Financial markets were cleary pleased by this, as the S&P500 approaches its three year high. Further, inflation expectations and treasury yields nudged down slightly.

The dollar, however, continued to weaken. Bernanke’s comments were responsible for at least some of this, given his clear message that unless inflation expectations become unhinged, markets will have plenty of warning before policy tightens. By tempering expectations of future interest rate hikes, this strategy is designed to keep forward rates low and financial markets buoyed. This approach, however, may not come without a cost. By creating asymmetries in markets, keeping interest rates low for this long may lead to financial and economic imbalances. Bernanke knows this, but he has decided that for now the potential payoff is worth the risk. This risk-reward profile is bound to change, however, as the recovery progresses into the second and thrid quarters – a point forward-looking investors should not ignore.

Alistair Bentley, Economist 416-307-5968

INFLATION EXPECTATIONS STILL ANCHORED

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Jan.11 Feb.11 Apr.11

10-YrReal10-YrBreak-Even10-YrNominal

%

Source:Bloomberg

US DOLLAR EXCHANGE RATES

0.8

0.9

1.0

Jan-11 Feb-11 Mar-11 Apr-11

1.20

1.25

1.30

1.35

1.40

1.45

1.50

USD/CHF(leftaxis)

EUR/USD(rightaxis)

Source:Bloomberg.

USDperCHF EUR/USD(invertedaxis)



3

UPCOMING KEY ECONOMIC RELEASES

The manufacturing sector continues to enjoy a good run of form, with the headline ISM manufacturing index printing at or above the 50-mark for 20 straight months. In April, we expect the headline index to show continued buoyancy in overall manufacturing sector activity, though it should ease for the second straight month to 58.5 from 61.2, signalling a further moderation in the pace of manu-facturing activity growth. The production, new orders, supplier deliveries and employment sub-components are all expected to remain above the 60 mark, underscoring the breadth and strength of the ongoing recovery. The prices paid sub-index should continue to register another above-80 print reflecting the rising cost of input given the surge in commodity prices. Most of the other sub-components are expected to remain relatively unchanged, with new export orders, and backlog of orders sub-indices all staying above

50. In the months ahead, as the economic recovery gains further traction we expect the positive momentum in overall manufacturing sector activity to be sustained, though the headline ISM index could ease further.

*ForecastbyRatesandFXStrategyGroup.Forfurtherinformation,contactTDRates&[email protected].

Even though the pace of jobless claims appears to have taken a surprising and inexplicable turn for the worse in the past month, with the level of unemployment claimants remaining above the crucial 400K mark for three straight weeks, we believe that the recovery in the labour market is being sustained. In April, we expect the economy to post another respectable 170K increase in employment, reinforc-ing the positive momentum being exhibited by other key economic indicators. Service sector employment is likely to remain the key engine for employment growth during the month adding a further 183K jobs while the goods-producing sector should contribute a further 25K to the employment gains. The bulk of the employment growth should come from hiring in professional services, wholesale sales and leisure and hospitality industries, while the acy-clical education sector should also be a big contributor to the employment growth. The manufacturing sector should also add favourably to jobs growth, underscoring the broad-based nature of the employment growth. However, despite

the growth in employment, we expect the unemployment rate to remain unchanged at 8.8% as the increase in employ-ment is likely to be offset by a commensurate increase in the labour force. In the coming months, with the economic recovery expected to gain further traction, the pace of job growth should accelerate, though the unemployment rate is expected to remain elevated and could rise appreciably as previously displaced workers move back into the labour force in search of new jobs.

U.S. ISM Manufacturing Index - April* Release Date: May 2, 2011March Result: 61.2 TD Forecast: 58.5; Consensus: 59.6

U.S. Nonfarm Payrolls - April* Release Date: May 6, 2011March Result: 216K; unemployment rate 8.8%TD Forecast: 170K ; unemployment rate 8.8%Consensus: 180K; unemployment rate 8.8%

U.S. ISM MANUFACTURING INDEX

30

35

40

45

50

55

60

65

2005 2006 2007 2008 2009 2010 2011

Source:U.S.InstituteforSupplyManagement/HaverAnalytics

Index

U.S. LABOR MARKET

-300

-200

-100

0

100

200

300

400

500

Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-117.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

NetJobChange*(lhs)

UnemploymentRate(rhs)

Thousandsofjobs %

Seasonally-adjusteddata;*Changeinnon-farmpayrollsSource:U.S.DeptartmentofLabor/HaverAnalytics

mailto:TDRates&[email protected]



4

RECENT KEY ECONOMIC INDICATORS: APRIL 25-29, 2011

Apr25 NewHomeSales Mar M/M%Chg. 11.1 -13.5 RApr25 DallasFedManf.Activity Apr Index 10.5 11.5Apr26 S&P/CS20City Feb M/M%Chg. -0.18 -0.25 RApr26 ConsumerConfidence Apr Index 65.4 63.8 RApr26 RichmondFedManufact.Index Apr Index 10 20Apr27 MBAMortgageApplications 22-Apr W/W%Chg. -5.6 5.3Apr27 DurableGoodsOrders Mar M/M%Chg. 2.5 0.7 RApr27 DurablesExTransportation Mar M/M%Chg. 1.3 0.6 RApr27 FOMCRateDecision 27-Apr % 0.25 0.25Apr28 ChicagoFedNatActivityIndex Mar Index 0.26 0.16 RApr28 GDPQoQ(Annualized) 1QA Q/Q%Chg. 1.8 3.1Apr28 GDPPriceIndex 1QA Q/Q%Chg. 1.9 0.4Apr28 InitialJoblessClaims 23-Apr Thousands 429 404 RApr28 ContinuingClaims 16-Apr Thousands 3641 3709 RApr28 PendingHomeSales Mar M/M%Chg. 5.1 0.7 RApr 29 EmploymentCostIndex 1Q Q/Q%Chg. 0.6 0.4Apr 29 PersonalIncome Mar M/M%Chg. 0.5 0.4 RApr 29 PersonalSpending Mar M/M%Chg. 0.6 0.9 RApr 29 ChicagoPurchasingManager Apr Index 67.6 70.6Apr 29 NAPM-Milwaukee Apr Index 68.0 66.0

Apr27 Teranet/NationalBankHPI Feb M/M%Chg. 0.1 0.4Apr 29 GrossDomesticProduct Feb M/M%Chg. -0.2 0.5

Apr26 AU ConsumerPrices 1Q Y/Y%Chg. 3.3 2.7Apr26 JN RetailTrade Mar Y/Y%Chg. -8.5 0.1Apr27 JN JoblessRate Mar % 4.6 4.6Apr27 JN NatlCPI Mar Y/Y%Chg. 0.0 0.0Apr27 JN IndustrialProduction MarP Y/Y%Chg. -12.9 2.9Apr27 NZ RBNZOfficialCashRate 28-Apr % 2.50 2.50Apr27 UK GDP 1Q A Y/Y%Chg. 1.8 1.5Apr28 GE UnemploymentRate(s.a) Apr % 7.1 7.1Apr28 NZ TradeBalance Mar NZD,Millions 464 193 RApr28 JN BOJTargetRate 28-Apr % 0.10 0.10Apr29 EC Euro-ZoneCPIEstimate Apr Y/Y%Chg. 2.8 2.6Apr29 EC Euro-ZoneUnemploymentRate Mar % 9.9 9.9

Source:Bloomberg,TDEconomics

International

Prior

Canada

United States

ReleaseDate Economic Indicators

Data for Period Units Current



5

ReleaseDate Time* Economic Indicator/Event

Data for Period Units

ConsensusForecast Last Period

May2 10:00 ConstructionSpending Mar M/M%Chg. 0.3 -1.4May2 10:00 ISMManufacturing Apr Index 59.6 61.2May2 10:00 ISMPricesPaid Apr Index 83.0 85.0May3 8:30 Fed's Hoenig Speaks to Community Bankers in WashingtonMay3 10:00 FactoryOrders Mar M/M%Chg. 1.7 -0.1May3 17:00 TotalVehicleSales Apr Millions 12.95 13.06May3 17:00 DomesticVehicleSales Apr Millions 9.8 9.94May4 7:00 MBAMortgageApplications 29-Apr W/W%Chg. -- -5.6May4 7:30 ChallengerJobCuts Apr Y/Y%Chg. -- -38.6May4 8:00 Fed's Rosengren Speaks at Real Estate Conf. in BostonMay4 8:15 ADPEmploymentChange Apr Thousands 200 201May4 10:00 ISMNon-Manf.Composite Apr Index 58.0 57.3May4 15:30 Fed's Williams Makes First Policy SpeechMay4 19:00 Fed's Lockhart Speaks on U.S. Economic Outlook in AtlantaMay5 8:30 NonfarmProductivity 1QP Q/Q%Chg. 1.0 2.6May5 8:30 UnitLaborCosts 1QP Q/Q%Chg. 0.8 -0.6May5 8:30 InitialJoblessClaims 30-Apr Thousands -- 429May5 8:30 ContinuingClaims 23-Apr Thousands -- 3641May5 9:15 Fed's Evans Gives Welcome Remarks in ChicagoMay5 9:30 Bernanke Speaks at Chicago Fed Banking ConferenceMay5 9:45 BloombergConsumerComfort 1-May Index -- -45.1May5 13:15 Fed's Kocherlakota Speaks on Monetary Policy in CaliforniaMay6 8:30 ChangeinNonfarmPayrolls Apr Thousands 180.0 216.0May6 8:30 UnemploymentRate Apr % 8.8 8.8May6 8:30 AvgHourlyEarningsAllEmployees Apr M/M%Chg. 0.2 0.0May6 8:30 AvgWeeklyHoursAllEmployees Apr Hours 34.3 34.3May6 10:00 Fed's Dudley Speaks at Regional Economic Briefing in NYCMay6 15:00 ConsumerCredit Mar US$,Billions 5.0 7.6

May2 8:30 IndustrialProductPrice Mar M/M%Chg. -- 0.7May2 8:30 RawMaterialsPriceIndex Mar M/M%Chg. -- 1.8May5 8:30 BuildingPermits Mar M/M%Chg. -- 9.9May5 10:00 IveyPurchasingManagersIndexSA Apr Index 63.0 73.2May6 2:00 BoC's Carney to Participate in a Panel at the Bank of FinlandMay6 7:00 NetChangeinEmployment Apr Thousands 13.0 -1.5May6 7:00 UnemploymentRate Apr % 7.7 7.7

May3 0:30 AU RBACashTarget -- % 4.75 4.75May3 4:30 UK PMIManufacturing Apr Index 57.0 57.1May4 2:00 UK Nat'wideHousePrices Apr Y/Y%Chg. -0.7 0.1May4 18:45 NZ UnemploymentRate 1Q % 6.7 6.8May5 6:00 GE FactoryOrders Mar Y/Y%Chg. 15.4 20.1May5 7:00 UK BOEAnnounesRates -- % 0.50 0.50May5 7:45 EC ECBAnnouncesInterestRates -- % 1.25 1.25May6 6:00 GE IndustrialProduction Mar Y/Y%Chg. 10.3 14.8

*EasternStandardTime;Sources:Bloomberg,TDEconomics

Canada

International

United States

UPCOMING ECONOMIC RELEASES AND EVENTS: MAY 2-6, 2011



6

Thisreport isprovidedbyTDEconomics forcustomersofTDBankGroup.Itisforinformationpurposesonlyandmaynotbeappropriateforotherpurposes.ThereportdoesnotprovidematerialinformationaboutthebusinessandaffairsofTDBankGroupandthemembersofTDEconomicsarenotspokespersonsforTDBankGroupwithrespecttoitsbusinessandaffairs.Theinformationcontainedinthisreporthasbeendrawnfromsourcesbelievedtobereliable,butisnotguaranteedtobeaccurateorcomplete.Thereportcontainseconomicanalysisandviews,includingaboutfutureeconomicandfinancialmarketsperformance.Thesearebasedoncertainassumptionsandotherfactors,andaresubjecttoinherentrisksanduncertainties.Theactualoutcomemaybemateriallydifferent.TheToronto-DominionBankanditsaffiliatesandrelatedentitiesthatcompriseTDBankGrouparenotliableforanyerrorsoromissionsintheinformation,analysisorviewscontainedinthisreport,orforanylossordamagesuffered.

CONTACTS AT TD ECONOMICS

Craig AlexanderSenior Vice President and

Chief Economistmailto:[email protected]

TO REACH US Mailing Address

55KingStreetWest 21stFloor,TDTower Toronto,Ontario M5K1A2 Fax:(416)944-5536 mailto:[email protected]

CANADIAN ECONOMIC ANALYSISDerek Burleton, Vice President and Deputy Chief Economist mailto:[email protected] Pascal Gauthier Senior Economist mailto:[email protected]

Diana Petramala Economist, Macro mailto:[email protected]

Francis Fong Economist, Special Studies mailto:[email protected]

Dina Cover Economist, Industry mailto:[email protected]

Shahrzad Mobasher Fard Economist, Industry mailto:[email protected]

Sonya Gulati Economist, Regional and Government Finances mailto:[email protected]

Leslie Preston Economic Analyst mailto:[email protected]

U.S. & INTERNATIONAL ECONOMIC ANALYSISBeata Caranci, Associate Vice President and Deputy Chief Economist mailto:[email protected] James Marple Senior Economist mailto:[email protected]

Martin Schwerdtfeger Economist, International mailto:[email protected]

Christos Shiamptanis Economist mailto:[email protected]

Alistair Bentley Economist mailto:[email protected]

Chris Jones Economic Analyst mailto:[email protected]

the weekly bottom line td economicsmar-08 mar-09 mar-10 mar-11 government net exports gross...

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