As the economy shuffles out of recession, conflicting economic data continue to confound investors and suggest the recovery will be anything but smooth.

Consider the recent headlines and the market reactions. The third quarter finished with a surprise 3.5% pickup in the gross domestic product, sending the Dow Jones Industrial Average up 200 points on Oct. 29. Worries over the dollar blasted the index back 250 points the next day.

Thursday's report of declining jobless claims whipped the Dow up 204 points, after initial claims for jobless benefits fell to their lowest level since Jan. 3. Friday, the Labor Department said the unemployment rate had reached 10.2%, its highest point since 1983.

That seemed to render obsolete some earlier pondering over when the government would begin to ease its broad stimulus programs and consider hiking interest rates from near-zero levels.

Recovery? Think again, wrote Stuart Hoffman, PNC chief economist.

"Despite improvement to many other economic indicators, labor market conditions are still deteriorating and will likely continue to deteriorate through the rest of this year," he wrote Friday. "Lack of job creation is now the fundamental problem for the economy, threatening to keep a drag on economic growth in 2010."

Wednesday's ruling by the Federal Reserve's Open Market Committee leaving rates in place was never in doubt, so many pundits shelved their guesswork for this meeting and speculated instead over when interest rates would eventually rise.

Bank of America-Merrill Lynch economist Drew Matus said that low interest rates are part of the government s wider stimulus strategy and are only now producing results. He added that talk of ending stimulus is premature, if not foolish.

"Timing the Fed's 'exit strategy' is difficult, particularly as the 'entrance strategy' has not ended," he wrote Wednesday. "We believe it is too soon for the Fed to adjust its language to reflect a shift towards the removal of policy accommodation."

Donald Ratajczak, chief economist for Morgan Keegan, wrote Nov. 2 that spending support is still vital.

"Much of the growth in the third quarter was caused by housing and automobile incentives [the just-extended $8,000 tax credit for first-time home buyers and the cash for clunkers rebates], one of which has since been discontinued," he said. "Until the private sector can generate the income needed to sustain growth, this economic recovery is at significant risk."

Job growth remains the only way to remove the risk and get the gears of recovery to mesh, rather than grind, ISI Group founder and chief economist Ed Hyman wrote Nov. 2. Although the PMI a key measure of business conditions has improved, economic indicators don't draw paychecks.

"In general, the bigger the recession, the bigger the stimulus, and the more important stimulus is to ending the recession," he wrote. "Judging by unemployment claims, PMIs and ISI's company surveys, the stimulus has probably ended the recession. However, the true test will be whether or not employment increases."

At this point, new jobs are coming only from the federal government's stimulus spigot, wrote David Rosenberg, the perennially bearish chief market strategist and economist at Gluskin Sheff. He said Friday that President Obama "is now running fiscal deficits that would have made FDR blush" and that "whatever economic growth is being squeezed into the system comes courtesy of the most dramatic intervention by the government in recorded history, including the New Deal 1930s era."

"If the consensus is correct that the recession is behind us, then what we have on our hands is the mother of all jobless recoveries," he wrote.

That may be the case, but Hyman was able to highlight some encouraging signs, however faint. The ISI survey of temporary employment growth picked up in October, and taken with the drop in new jobless claims, points to real prospects for a turnaround.

"Temp employment, which tends to lead, has increased for the past three months, suggesting that payroll employment continues to improve," he wrote Friday.

Others saw bright spots in corporate earnings. Yardeni Research chief economist Ed Yardeni observed that although "there are still plenty of issues to worry about," by Thursday, 82% of the S&P 500 companies had reported third-quarter results and most had been better than expected. So far, a record high 80% of them had positive earnings surprises, up from 73% during the second quarter, well up from the recent low of 59% during the last three months of 2008.

We "have been expecting a subpar economic recovery," he wrote Nov. 2, and "think this forecast remains on track," but that some recovery is better than none. "We believe that the recession ended during June and that the economy isn t slipping back into it," he wrote.