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While there's no question the economy is beginning to recover from the worst recession since the Great Depression, with GDP increasing by six percent in the fourth quarter, data released today shows that the recovery is far from a strong one.

The Department of Labor reported that initial unemployment claims declined by 6,000 to 462,000.  The four week moving average came in at 475,500, which was an increase of 5,000 from the previous week's figure.  Continuing claims increased by 37,000 to 4.558 million, and the four week moving average here was unchanged at 4.581 million.

Eight states reported a decrease of more than 1,000 claims, with Pennsylvania's drop of 4,772 leading the way.  On the down side, four states reported claims increased by more than 1,000, with California's increase of 16,112 claims the highest.

Analysts had expected initial claims to decrease slightly more than they did, with the consensus estimate for a drop to 460,000.  Estimates ranged from 440,000 to 480,000

Not surprisingly, the less than stellar job market translates into higher foreclosures.  Many people live paycheck to paycheck and when they lose their jobs, they can't pay their mortgages.  That was shown by a report from RealtyTrac, which said that foreclosures increased by six percent in February from the year ago period.

While the increase in foreclosures was the slowest rate of increase in four years, it's still an increase and some of it may be due to delays in processing claims due to the severe winter weather that hit much of the country in February.  And RealtyTrac's CEO said that the data doesn't show that fewer homeowners are at risk.  Instead, he said, foreclosure prevention programs, legislation, and processing delays may be capping the number of monthly foreclosures.

Not surprisingly, the worst markets for foreclosures were the ones who saw the biggest run up in the bubble.  Las Vegas was the worst market, where one in 90 properties is in foreclosure.  That helped put Nevada at the head of the list of states with high foreclosure rates, with one in 102 homes suffering that fate.  Arizona and Florida were next, with one in 163 homes in foreclosure.

There is likely not going to be a positive trend in foreclosures as long as the jobs market remains tough.  The latest data shows that while the pace of layoffs is slowing, the economy is still isn't creating jobs.  In order for that to happen, according to the global chief economist at MF Global, initial "claims will likely have to resume a downward trend if payrolls are to improve."

However, things are moving in that direction.  According to the director of worldwide recruiting for Accenture, there is "a very broad uplift globally" in demand for Accenture's services.  He added that demand is heading "right back to the pre-recession levels."

Still, until we see payrolls expand, it's hard to see how the economy can grow strongly.  And as long as unemployment remains high, foreclosures are going to remain high as well.  The trend may be towards a slower rate of foreclosures, but the trend still is up.

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While larger businesses are starting to show optimism and some of them have resumed hiring, small businesses remain pessimistic.  The National Federation of Independent Business released its small business optimism index for the month of February, and it showed a drop of 1.3 points to 88.0.

Seeking to place blame, the chief economist for the NFIB blamed the "Washington DC agenda" for the negative sentiment among small businesses.  First, someone's got to define what that agenda is.  Second, what is it about, say, restricting large banks from prop trading that will affect small businesses?  If they were affected by the rule, then they wouldn't be a small business, would they?

It is disappointing to see what should be an economic data release tainted by political rants from the organization releasing the data.  Regulation is something that the NFIB rails against even though most regulations exempt its members, and the organization is seizing on this negative survey to push its agenda.  Nevertheless, there is useful information in the report.

While optimism has dipped among small businesses, they look like they plan to resume hiring.  Employment per firm dropped by 0.13 workers, which is way down from the 0.5 workers per firm average since the recession began.  Looking forward, 13 percent of small businesses plan to increase their payrolls, while eight percent plan to cut payrolls.  The number of businesses planning to hire more workers increased by three points, while the number of businesses looking to cut them decreased by two percent.  Thus, even in the negative survey, there's some good news.

Despite the ranting against the "Washington DC agenda" from the NFIB, the real reason for pessimism among small businesses is decreasing sales.  Companies reporting higher sales dropped by two points to 15 percent, while companies reporting lower sales was unchanged at 46 percent.  That is the real reason for pessimism among small businesses.  It is hard to be optimistic when you see sales falling. 

One of of the main pillars of conventional wisdom is that small businesses drive economy.  That thinking needs to be examined thoroughly.  It is clear that larger employers are the ones who are resuming hiring at a far faster rate than small businesses.  Maybe it's the large employers that drive hiring, and small businesses just follow along.

Small businesses and family farms are, in the opinion of this writer, often given a spot on a pedastal that they simply don't deserve.  And this comes from an individual who is the sole proprietor of a small business.  Who, incidentally, will never join the NFIB because they're so full of crap.

This is something to ponder on a day where there's little economic data to drive the markets.

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Multiple reports released by the Department of Labor over the past two days showed that the freeze in the labor market is starting to thaw.  First, on Thursday, initial unemployment claims declined by 29,000 to 469,000.  The four week moving average also decreased, dropping to 470,750 from last week's revised 474,250.  The number of continuing claims also fell, dropping by 134,000 to 4.5 million.  The four week moving average dropped as well, declining by 29,250 to 4.576 million.  This was the lowest number of continuing claims since January 2009.

There were 12 states which saw claims drop by more than 1,000, with California's 12,000 decrease in claims topping the list.  On the downside, seven states, led by New Jersey's 4,879 claims, saw more than 1,000 additional initial claims.

Economists had estimated that there would be 470,000 initial claims, with estimates ranging from 440,000 to 515,000 claims, so the actual number was pretty much right on with the consensus.  The head of economics for Bank of America Merrill Lynch Global Research said that the initial claims numbers indicate that hiring will resume soon.  However, he cautioned that the job market remains in limbo, "where it is not clear if job growth has started yet."  When companies resume hiring, the hiring will likely be "broad based" because companies "overreacted and fired a lot of people, more than they needed to, with the news of the recession."

Adding to the positive news on the jobs front was the release of the Department of Labor's employment situation report on Friday.  The report showed that the unemployment rate remained steady at 9.7 percent.  Employers shed 36.000 jobs in February, a rate that the Department of Labor called "little changed."

Job cuts were spread equally between private sector employers and the government, with each shedding 18,000 jobs.  The construction, transportation, and information sectors were the ones losing the most jobs.  On the plus side, temporary help and health care showed the most growth.  And in a case where a minimal gain was actually a positive, the manufacturing sector showed a very small increase in jobs, following a gain in that sector during January.

It's also important to note that this report was affected by the severe winter storms that paralyzed much of the mid-Atlantic for days.  The report, according to the Department of Labor, used data from the week of February 12.  Thus, it is possible that the storms affected the report.

Economists said that it is likely that the report would have showed a gain in jobs for the first time in years if it wasn't for the severe winter weather.  There's a good chance we're at the turning point for unemployment," said an economics professor at the University of Chicago.  The report showed that the decline in the unemployment rate since October was real, and the "decline was not a statistical anomaly," he added.

The report also showed that some companies are starting to back up their words with actions.  According to human resources consulting company Towers Watson, 92 percent of all employers said they would add to their payrolls in 2010.  While they said they'd do it more slowly than in the past, the employment situation report shows this may be happening.

And in a sign that the growth in jobs is not coming at the expense of productivity, another report from the Department of Labor showed that productivity jumped in the fourth quarter of 2009 by 6.9 percent.  There was a gain in output of 7.6 percent that was partially offset by an increase in hours worked of 0.6 percent.

Inflationary pressures from employees are likely to be kept in check, as unit labor costs fell by 5.9 percent in the fourth quarter of 2009.  This came as a result of productivity increasing by more than compensation.  When compared year over year, unit labor costs declined by 4.7 percent, which was the largest decline since the government started keeping records in 1948.

Productivity was forecast to increase by 6.3 percent according to the consensus estimate.  The estimate for unit labor costs was for a decrease of 4.5 percent.  Estimates for productivity gains ranged from 5.7 to 7.1 percent.

Economists called the gains in productivity unsustainable.  The chief economist at Woodley Park Research in Washington said employers "experienced rising output level without increasing employment to a degree that can't persist."  And a senior economist at PNC Financial in Pittsburgh said "productivity gains will not be sustained because companies are operating at a bare minimum in terms of employment and they will need to start increasing employment to increase output and capture additional revenue."

The combination of the good news on the jobs and productivity front caused a rally in stocks.  For the week, the Dow was up by 2.3 percent to 10,566.  The S&P 500 gained 3.1 percent and closed at 1,139.  And the Nasdaq increased by 3.9 percent to close at 2,326.

In an economic recovery, the last thing to recover is typically the labor market.  This is because companies do not start to hire until they are sure things are improving.  With consumer spending accounting for two thirds of the economy, until consumers think their jobs are secure, they don't really start to open their wallets.  And so, the slow recovery process takes place.

However, the better than expected news on initial claims, payroll losses, unemployment, and productivity bode well for an improved job market.  That is when we'll see the economy start to grow at a better pace.  Still, with 8.4 million jobs lost since the beginning of the recession, even a strong recovery will require years to replace the lost jobs.

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