THE WEEKLY BOTTOM LINE

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1 THE WEEKLY BOTTOM LINE TD Economics HIGHLIGHTS OF THE WEEK United States It was a quiet week on the U.S. macroeconomic news front, however the stock markets made headlines with both S&P 500 and the Dow Jones rising to record levels. The effects of Fed s quantitative easing program are also being felt beyond Wall Street. Based on the latest Senior Loan Officer Survey, credit availability continues to improve, with lending terms easing for small businesses and households. In terms of households demand for credit, prime residential mortgages continue to strengthen in tandem with the recovery in the housing market. Non-revolving credit is still advancing at a strong pace, meanwhile growth of revolving credit, which includes credit card debt, remains soft. Canada The Canadian economy created 13,000 jobs in April, putting the 3-month and 6-month average job gain at 2,900 and 12,400. The unemployment rate held steady at 7.2%. Full-time jobs were up a more hearty (+36,000), but mostly driven by government hiring (+34,200), while the private sector shed jobs for the third time in four months. This week s housing starts report helped solidify our view that construction activity is now cooling from the unsustainable pace recorded in 2011 and Homebuilders broke ground on 175,000 units in April of this year continuing a moderating trend that began in April of THIS WEEK IN THE MARKETS Current* Week Ago 52-Week High 52-Week Low Stock Market Indexes S&P 500 1,627 1,614 1,633 1,278 S&P/TSX Comp. 12,544 12,438 12,879 11,281 DAX 8,282 8,122 8,282 5,969 FTSE 100 6,607 6,521 6,607 5,260 Nikkei 14,608 13,694 14,608 8,296 Fixed Income Yields U.S. 10-yr Treasury Canada 10-yr Bond Germany 10-yr Bund UK 10-yr Gilt Japan 10-yr Bond Foreign Exchange Cross Rates C$ (USD per CAD) Euro (USD per EUR) Pound (USD per GBP) Yen (JPY per USD) Commodity Spot Prices** Crude Oil ($US/bbl) Natural Gas ($US/MMBtu) Copper ($US/met. tonne) Gold ($US/troy oz.) *as of 9:20 am on Friday, **Oil-WTI, Cushing, Nat. Gas-Henry Hub, LA (Thursday close price), Copper-LME Grade A, Gold-London Gold Bullion; Source: Bloomberg NORTH AMERICAN STOCK MARKETS Daily data, re-indexed. May 2011=100 S&P 500 S&P TSX May-11 Aug-11 Nov-11 Mar-12 Jun-12 Sep-12 Jan-13 Apr-13 Data to 1:25 PM,. Source: WSJ / Bloomberg GLOBAL OFFICIAL POLICY RATE TARGETS Current Target Federal Reserve (Fed Funds Rate) % Bank of Canada (Overnight Rate) 1.00% European Central Bank (Refi Rate) 0.50% Bank of England (Repo Rate) 0.50% Bank of Japan (Overnight Rate) 0.10% Source: Central Banks, Haver Analytics

2 U.S. FROM WALL STREET TO MAIN STREET It was another record-breaking week for the country s stock markets. A series of better-than-expected corporate earnings reports, strong trade data from China and expectations that the Federal Reserve is in no hurry to take away the punch bowl, helped to push both the Dow Jones and the S&P 500 to new highs. Although the markets lost some steam by the end of the week, both indexes were still 0.7% above last week s level, at the time of writing. Conversely, the appetite for xed-income assets continued to wane, with U.S. Treasuries trading at slightly lower prices, pushing 10- year yields 17 basis points higher since the end of last week. While one of the stated effects of the Fed s ongoing monetary support is to prop up stock prices, in order for quantitative easing to be successful it must go beyond Wall Street. Fortunately, according to the Federal Reserve s Senior Loan Of cer Survey (SLOS), Main Street too is beginning to see the bene ts of the Fed s easy money policy. One of the important lessons of the nancial crisis was that it is not just the price of credit that determines nancial conditions, but also its availability especially to the small businesses and households that drive economic growth. So, it was encouraging to see that lending terms on commercial and industrial (C&I) loans and on commercial real estate (CRE) loans improved for both large and small businesses in the second quarter. On the household side, credit constraints remain an issue when it comes to residential mortgages. Of course, it is not just the supply of credit that matters, but also the LENDING TERMS EASE FOR FIRMS OF ALL SIZES Net percentage of respondents easing standards for C&I loans 2006Q2 2007Q2 2008Q2 2009Q2 2010Q2 2011Q2 2012Q2 2013Q2 Source: Federal Reserve, TD Economics Large and medium firms Small firms Year-over-year % change CONSUMER CREDIT Revolving Non-revolving Source: Federal Reserve, TD Economics demand. For the fth consecutive quarter, banks reported stronger demand for prime mortgages, which is in line with the housing market recovery over the past year. Mortgage applications have also begun turning upward, with 12% gain relative to year-ago levels as of May 3rd. Outside of the residential mortgage segment, consumer credit continued to grow in March, although at a decelerated pace relative to February. In fact, only the non-revolving component comprised mostly of student and motor vehicle loans posted an increase, while the revolving component made up of mainly of credit cards declined by $1.7 billion. The decline re ects slow growth in new issuance relative to repayments and a normal rate of charge offs. The latest data reinforces the broader trend. Non-revolving credit is up 8.4% year-over-year, while credit card debt expanded by 0.5%. Weak growth in credit card debt suggests that households continue to carefully monitor their borrowing. Meanwhile, strong growth in non-revolving credit re ects ongoing pentup demand for autos that has driven the rebound in loans, as well as a ramp-up in student debt a legacy of the protracted recovery in the labor market. The bottom line is that while we re not completely out of the woods yet, there are growing signs that monetary policy is bearing fruit beyond Wall Street. With ongoing easing of lending conditions and improvement in credit growth, faster economic growth cannot be too far away. Ksenia Bushmeneva, Economist

3 CANADA SLOWLY BUT SURELY This week s labour force survey release painted a picture of a softening Canadian employment market. Only 13,000 jobs were created in April, putting the 3-month and 6-month average job gain at 2,900 and 12,400 both of which are indicative of a soft hiring environment. The unemployment rate held steady at 7.2% in the month. Digging deeper into the data, one may argue that the increase in full-time (+36,000) employment in April paints a brighter picture. However, that gain was mostly driven by government hiring (+34,200), while the private sector shed jobs for the third time in four months. Putting it in perspective, some the softening in employment in recent months re ects payback for strong gains in the second half of In addition, employment generally follows any pick up or slowdown in real GDP growth with a one to two quarter lag. So, it s not surprising to see job growth stalling given the weak economic backdrop experienced in the second half of In fact, most of the job weakness has been in manufacturing, and is likely tied to the sharp slowdown in trade experienced last year. While, the economy has since picked up steam, with real GDP growth estimated to have clocked in at 2.5% annualized in the rst quarter of this year, the temporary slowdown hit in the U.S. economy due to scal restraint may continue to weigh on Canadian business con dence and hiring intentions in the near-term. On the domestic front, the public sector and construction industry, which have been two sources of relative strength 14,600 14,400 14,200 14,000 13,800 13,600 13,400 13,200 13,000 CANADIAN EMPLOYMENT Level, 000's Full-time Employment Source: Statistics Canada Part-time Employment 3,500 3,400 3,300 3,200 3,100 3,000 2,900 2,800 CANADIAN HOUSING STARTS Units, Seasonally adjusted at annualized rates Source: Statistics Canada since late-2012, are likely to act as headwinds on employment going forward. Public sector hiring is likely to wane as governments focus on spending restraint. Meanwhile, this week s housing starts report helped solidify our view that construction activity is now cooling from the unsustainable pace recorded in 2011 and Homebuilders broke ground on 175,000 units in April of this year continuing a moderating trend that began in April of Subsequently, starts have fallen 30%. We expect this slower pace of construction activity to continue going forward. For one, slower housing demand and price gains are likely to weigh on homebuilders decisions to start new projects. Second, the pace of construction is now in line with demographic and economic fundamentals and in our view more sustainable than the break neck pace experienced over the last few years. The full extent of the impact of falling construction activity has yet to be felt on real GDP growth and employment. As 2013 unfolds, the economic backdrop should improve, helping to support a pick-up in employment in sectors not tied to government spending and housing. Overall, economic growth is expected to continue at a near 2% pace through the rest of the year, which is consistent with monthly job gains in the range of 10,000-15,000. In particular, manufacturing employment is expected to turn around as the sector bene ts from improving U.S. private demand in the second half of this year and the prospects for a softening in the Canadian dollar. Diana Petramala, Economist

4 U.S.: UPCOMING KEY ECONOMIC RELEASES U.S. Retail Sales - April* Release Date: May 13, 2013 March Result: Total -0.4% M/M; Ex-autos -0.4% M/M TD Forecast: Total -0.3% M/M; Ex-autos -0.4% M/M Consensus: Total -0.3% M/M; Ex-autos 0.2% M/M Weakening domestic economic activity along with the turn lower in labor market activity should continue to weigh on consumer spending activity in April. During the month, we expect total retail sales activity to decline a further 0.3% m/m, following the 0.4% m/m drop the month before. Weaker gasoline should be the main catalyst for the drop in the headline number. However, with car sales modestly higher on the month, ex-auto spending should fall a further 0.4% m/m. Despite the weakness in the headline numbers, the overall tone in personal expenditures should remain relatively constructive, as core spending activity is expected to eke out a 0.1% m/m gain mostly on higher spending on non-discretionary items, as consumers divert the windfall from lower gasoline prices to other spending categories. The return of warmer weather should also help core spending activity. U.S. RETAIL AND FOOD SERVICES SALES M/M % Chg Total Excl. Automotive Dealers -1.0 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 Source: U.S. Department of Commerce / Haver Analytics U.S. Industrial Production - April* Release Date: May 15, 2013 March Result: Industrial Production 0.4% m/m; Capacity Utilization 78.5% TD Forecast: Industrial Production -0.4% m/m; Capacity Utilization 78.3% Consensus: Industrial Production -0.1% m/m; Capacity Utilization 78.4% U.S. INDUSTRIAL PRODUCTION M/M % Chg. % 1.4 Industrial Production (lhs) Capacity Utilization (rhs) US growth momentum has slowed dramatically, and the weakening tone in domestic economic activity along with slowing global demand should be duly re ected in industrial sector output in April. During the month we expect industrial production to post a fairly signi cant 0.4% M/M decline, marking the biggest drop in this indicator since last August. Falling manufacturing sector output, which should decline for the third time in four months, should be the main catalyst for the decline in output. However, utility production should also decline sharply, unwinding the strong gains 5.3% m/m surge in March, as warmer weather cuts into heating demand. The drop in industrial output should push the pace of factory usage lower, with the rate of Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 Source: Bureau of Economic Analysis capacity utilization falling to 78.3% down from 78.5%. The soft backdrop for industrial output should persist in the coming months, as the economy continues to navigate against the domestic scal headwinds and weak global backdrop *Forecast by Rates and FX Strategy Group. For further information, contact TDRates&FXResearch@tdsecurities.com. 4

5 U.S. CPI - April* Release Date: May 16, 2013 March Result: All-items -0.2% M/M; Core 0.1 M/M TD Forecast: All-items -0.2% M/M; Core 0.2% M/M Consensus: All-items -0.3 M/M; Core 0.2% M/M Falling energy prices should continue to dampen consumer price pressures in April, and with the price at the pump expected to fall a further 8.2% in April (the biggest drop for this month since 2003) headline CPI price index should post another 0.2% m/m drop (down 0.164% m/m at 3-decimal places). This will mark the second consecutive monthly decline in consumer prices, and the weakening trend should push the annual pace of headline CPI in a- tion to a new 30-month low of 1.3% y/y. Core consumer prices should remain relatively rm, posting a 0.2% m/m advance. Despite the increase, the annual pace of core ination should decelerate further, falling to 1.8% Y/Y from 1.9% Y/Y, which will also be a 21-month low. However, as the favorable base effects dissipate, in ationary pressures should start drifting higher, with core CPI rising back to around 2.0% y/y later this year. U.S. CONSUMER PRICE INDEX (CPI) Y/Y % Chg. 3.5 All Items All Items Ex. Food and Energy Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 Source: Bureau of Labor Statistics / Haver Analytics *Forecast by Rates and FX Strategy Group. For further information, contact TDRates&FXResearch@tdsecurities.com. 5

6 CANADA: UPCOMING KEY ECONOMIC RELEASES Canadian Manufacturing Shipments - March* Release Date: May 15, 2013 February Result: 2.6% M/M TD Forecast: 0.5% M/M Consensus: 0.5% M/M The manufacturing sector is expected to close out the quarter on a decent note as sales are forecast to rise by 0.5% in March following a strong 2.6% increase in February. Despite a robust and broadly based increase for exports, we would shade a downside risk to the forecast as we are circumspect on how much of the strength in exports translates to manufacturing sales particularly given US data disappointments and weakness in orders. This is particularly the case when it comes to transport equipment given the decline in Canadian auto production and the dif cultly associated with sustaining strong sales during February (+8.7%). Moreover, given that Statistics Canada measures the production value rather than sales for the aerospace sector, the large gain in aircraft exports during March may have already been accounted for in aerospace sales in February (which rose by 16%). Elsewhere, moderately higher sales CANADIAN MANUFACTURING SHIPMENTS M/M % Chg. Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Source: Statistics Canada Inventory-to-Shipments Ratio (rhs) Manufacturing Shipments (lhs) Seasonally Adjusted Ratio should be observed in the energy and food categories. After adjusting for the impact of changing prices, manufacturing volumes are expected to match the increase in nominal sales. While this should provide modest support to industry level real GDP, the manufacturing sector may show some fatigue on an industry level basis after providing a sizeable boost to output in January and February Canadian CPI - April* Release Date: May 17, 2013 March Result: All-items 0.2% M/M; Core 0.2% M/M TD Forecast: All-items 0.0% M/M; Core -0.1% M/M Consensus: All-items 0.2% M/M; Core 0.2% M/M Many moving pieces will make for a messy CPI report in April. Headline prices are expected to have remained unchanged on a non-seasonally adjusted basis, effectively balancing a sharp decline in energy prices and a seasonal drag with the most lift expected from the shift from the HST to the PST in British Columbia. The drag from commodity prices becomes more apparent in the seasonally-adjusted measure, which is forecast to have fallen by 0.4%. Base year effects are also expected to have undercut the yearago measure, with headline in ation forecast to fall sharply from 1.0% to just 0.5%. Core prices are also expected to have remained subdued, with the non-seasonally adjusted price index forecast to fall by 0.1%. Seasonal factors have less of a role to play for core prices, and we expect to see a similar drop in the seasonally-adjusted price series. The Y/Y % Chg U.S. CONSUMER PRICE INDEX (CPI) All Items Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 Source: Bureau of Labor Statistics / Haver Analytics All Items Ex. Food and Energy weakness in core prices is expected to re ect lower auto prices which underpinned a sharp increase in sales as well as lower clothing prices following two months of outsized gains. Base year effects will also cast a long shadow over core in ation, which is expected to carve out a new cyclical low of 0.9% in April before once again grinding higher in the coming months. *Forecast by Rates and FX Strategy Group. For further information, contact TDRates&FXResearch@tdsecurities.com. 6

7 Release Date RECENT KEY ECONOMIC INDICATORS: MAY 6-10, 2013 Economic Indicator/Event Data for Period Units Current Prior United States May 7 IBD/TIPP Economic Optimism May Index May 7 JOLTs Job Openings Mar Thousands R May 7 Consumer Credit Mar USD, Blns R May 9 Initial Jobless Claims May 3 Thousands R May 9 Continuing Claims Apr 27 Thousands R May 9 Wholesale Inventories Mar M/M % Chg May 9 Wholesale Sales Mar M/M % Chg R Canada May 6 Building Permits Mar M/M % Chg R May 6 Ivey Purchasing Managers Index Apr Index May 8 Housing Starts Apr Thousands R May 9 New Housing Price Index Mar M/M % Chg May 10 Unemployment Rate Apr % May 10 Net Change in Employment Apr Thousands May 10 Participation Rate Apr % International May 6 EC Euro-Zone Retail Sales Mar Y/Y % Chg R May 6 AU Trade Balance Mar AUD, Mlns R May 7 AU RBA Cash Target May 7 % May 7 FR Trade Balance Mar Euros, Mlns R May 7 FR Industrial Production Mar Y/Y % Chg R May 7 FR Manufacturing Production Mar Y/Y % Chg R May 7 GE Factory Orders Mar Y/Y % Chg R May 8 UK Halifax House Price (3 mths MA) Apr Y/Y % Chg May 8 GE Industrial Production (wda) Mar Y/Y % Chg R May 8 NZ Unemployment Rate Q1 % R May 8 NZ Employment Change Q1 Y/Y % Chg May 8 AU Employment Change Apr Thousands R May 8 AU Unemployment Rate Apr % May 9 UK Industrial Production Mar Y/Y % Chg R May 9 UK Manufacturing Production Mar Y/Y % Chg R May 9 UK BOE Announces Rates May 9 % May 9 UK BOE Asset Purchase Target May GPB, Blns May 9 UK NIESR GDP Estimate Apr M/M % Chg R May 9 JN Trade Balance - BOP Basis Mar Yen, Blns May 10 GE Trade Balance Mar Euros, Blns May 10 GE Imports SA Mar M/M % Chg R May 10 GE Exports SA Mar M/M % Chg R May 10 UK Total Trade Balance Mar GPB, Mlns R May 10 UK Construction Output Mar Y/Y % Chg R * Eastern Standard Time; Source: Bloomberg, TD Economics 7

8 Release Date Time* UPCOMING ECONOMIC RELEASES AND EVENTS: MAY 13-17, 2013 Economic Indicator/Event Data for Period Units Consensus Forecast Last Period United States May 13 8:30 Advance Retail Sales Apr M/M % Chg May 13 8:30 Retail Sales Ex Auto & Gas Apr M/M % Chg May 13 10:00 Business Inventories Mar M/M % Chg May 14 7:30 NFIB Small Business Optimism Apr Index May 14 8:30 Import Price Index Apr M/M % Chg May 14 11:00 NY Fed Releases Quarterly Household Debt Report May 15 8:30 Empire Manufacturing May Index May 15 8:30 Producer Price Index Apr M/M % Chg May 15 8:30 Producer Price Index Ex Food & Energy Apr M/M % Chg May 15 9:00 Total Net TIC Flows Mar USD, Blns May 15 9:15 Industrial Production Apr M/M % Chg May 15 9:15 Capacity Utilization Apr % May 15 9:15 Manufacturing (SIC) Production Apr M/M % Chg May 15 10:00 NAHB Housing Market Index May Index May 16 8:30 Consumer Price Index Apr M/M % Chg May 16 8:30 Consumer Price Index Ex Food & Energy Apr M/M % Chg May 16 8:30 Housing Starts Apr Thousands May 16 8:30 Building Permits Apr Thousands May 16 10:00 Philadelphia Fed. Business Outlook Survey May Index May 17 9:55 University of Michigan Confidence May P Index May 17 10:00 Conference Board Leading Indicators Apr M/M % Chg Canada May 15 8:30 Manufacturing Sales Mar M/M % Chg May 15 9:00 Existing Home Sales Apr M/M % Chg May 16 8:30 International Securities Transactions Mar CAD, Blns May 17 8:30 Wholesale Sales Mar M/M % Chg May 17 8:30 Consumer Price Index Apr M/M % Chg May 17 8:30 Core Consumer Price Index Apr M/M % Chg International May 13 2:30 FR Bank of France Bus. Sentiment Apr Index May 14 2:45 FR Current Account Mar Euros, Blns May 14 5:00 EC Euro-Zone Ind. Prod. wda Mar Y/Y % Chg May 14 5:00 GE Zew Survey (Current Situation) May Index May 14 5:00 GE Zew Survey (Econ. Situation) May Index May 15 1:00 JN Consumer Confidence Apr Index May 15 1:30 FR Gross Domestic Product 1Q P Y/Y % Chg May 15 2:00 GE Gross Domestic Product wda 1Q P Y/Y % Chg May 15 2:45 FR Consumer Price Index - EU Harmonized Apr Y/Y % Chg May 15 4:30 UK ILO Unemployment Rate (3mths MA) Mar % May 15 4:30 UK Employment Change (3 mths cumulative) Mar Thousands May 15 5:00 EC Euro-Zone Gross Domestic Product s.a. 1Q A Y/Y % Chg May 15 19:50 JN Gross Domestic Product Annualized 1Q P Q/Q % Chg May 16 2:45 FR Non-Farm Payrolls 1Q P Q/Q % Chg May 16 5:00 EC Euro-Zone Trade Balance sa Mar Euros, Blns * Eastern Standard Time; Source: Bloomberg, TD Economics 8

9 CONTACTS AT TD ECONOMICS Craig Alexander Senior Vice President and Chief Economist CANADIAN ECONOMIC ANALYSIS Derek Burleton, Vice President and Deputy Chief Economist Sonya Gulati Senior Economist, Government Finance and Public Policy Diana Petramala Economist, Real Estate Francis Fong Economist, Financial Dina Ignjatovic Economist, Autos, Commodities and Other Industries Leslie Preston Economist, Macro Jonathan Bendiner Economist, Regional Connor McDonald Economist U.S. & INTERNATIONAL ECONOMIC ANALYSIS Beata Caranci, Vice President and Deputy Chief Economist James Marple Senior Economist Martin Schwerdtfeger Senior Economist, International Michael Dolega Economist Thomas Feltmate Economist Ksenia Bushmeneva Economist TO REACH US Mailing Address 55 King Street West 21st Floor, TD Tower Toronto, Ontario M5K 1A2 Fax: (416) This report is provided by TD Economics. 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 Group and the members of TD Economics are not spokespersons for TD Bank 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 fi nancial 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 affi liates and related entities that comprise TD Bank 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. 9