* Robust U.S. jobs report unlikely to shift Fed thinking
* Stagnant industry output underlines euro zone, UK woes
* Government, household deleveraging form brisk headwinds
By Alan Wheatley, Global Economics Correspondent
LONDON, March 10 Global economic news is
improving here and there, but a batch of data due this week is
unlikely to shake financial markets' conviction that major
central banks are not about to take away the punch bowl.
If anything, even more monetary easing could be in the
A minority of policymakers at the Bank of England wants to
expand its bond buying. The nominee to head the Bank of Japan is
promising profound change to root out deflation.
Even the conservative European Central Bank (ECB) pondered a
further interest rate cut last week after its staff forecast
that the euro zone would not only remain in recession in 2013
for the second year in a row but would shrink by more than
Extraordinarily loose global policy settings speak volumes
about how much spare capacity there still is in the post-crisis
world economy - despite Friday's surprisingly strong U.S. job
"My best guess is that the output gaps are sufficiently
large in all the major economies that central banks can do
additional stimulus if need be," said Derry Pickford, macro
analyst at investment managers Ashburton in London.
LOTS OF SLACK
U.S. retail sales are likely to have risen 0.5 percent in
February, according to a Reuters poll of economists.
That's not bad on the surface, but it would be flat in real
terms if forecasts of a 0.5 percent increase in consumer prices
prove accurate. Both sales figures and prices are likely to have
been lifted by higher gasoline prices.
Estimating output gaps is an imprecise science. But even if
America's economy turns out to be closer than anticipated to
reaching its inflationary speed limit, Pickford said this was a
risk for 2014 and not for the second half of this year.
In a recent speech, Federal Reserve Vice-Chair Janet Yellen
firmly quashed talk of an early withdrawal of stimulus.
Indeed, after the government reported that the U.S.
unemployment rate fell to a four-year low of 7.7 percent in
February, traders of short-term U.S. interest rate futures were
still betting that the U.S. central bank was more likely to
raise rates in early 2015 than in late 2014.
What's more, Wall Street economists polled by Reuters after
the jobs report said they expected the Fed to keep buying bonds
through the end of this year.
Bruce Kasman, an economist with JP Morgan in New York, said
he doubted the unemployment rate would fall much below 7.5
percent at any stage in 2013.
Consumers would have to absorb the shock of higher payroll
taxes and job cuts triggered by across-the-board federal
spending cuts after politicians in Washington failed to agree a
long-term budget deal.
As a result, growth in non-farm payroll jobs was likely to
slip to around 150,000 from the 191,000 average of the past
three months. February's figure was 236,000. In short, the
economy would not be displaying the consistency the Fed wants to
see before it starts to row back from its ultra-loose stance.
"The numbers in the coming months will have a little bit of
a hit from the tax-increase drag, and that will slow labour
markets somewhat and will keep the Fed believing that we're
going to take some time before we hit that escape velocity,"
Kasman said on a conference call.
Across the Atlantic, industrial production is predicted to
have fallen 0.1 percent in the euro zone and risen 0.1 percent
in Britain during January.
"In our view, there is little doubt that central banks
retain the capacity to do more, despite the size of their
balance sheets and the low level of policy rates," Jens Larsen,
chief European economist at Royal Bank of Canada in London, said
in a note.
That was particularly true for the ECB, which kept policy on
hold last week. "It could, if push came to shove, engage in an
outright purchase programme of the kind in which the Bank of
England has engaged," Larsen said.
He said the ECB also had some leeway to lower its main
short-term interest rate - a course of action advocated on
Friday by Christine Lagarde, the managing director of the
International Monetary Fund.
Fundamentally, central banks would stick to accommodative
policies because the world is awash in excess capacity and
growth is being held back because governments and the private
sector are reducing their debts, a process that Larsen said was
not about to end soon.
Fraser Thompson with the McKinsey Global Institute said
consumer deleveraging could last for years.
In Europe at least, he said, the solution was for
governments to mount a concerted effort to remove roadblocks
such as planning curbs that deter corporate capital spending.
"Private investment is likely to have to play a dominant
role if we're going to have a serious economic rebound,"