Welcome to the Jittery, Jobless Recovery

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.