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Another break from the 'recovery'?

|Includes: SPDR S&P 500 Trust ETF (SPY)
It appears unemployment is not improving as much as the market's upswing (prior to today) had indicated, providing support for our view that the market is (and soon to be 'was') over-valued. Initial jobless claims of 480k for the last week of Jan. came in higher than expected and highest since the Nov. 14, 2009 reading of 501k. In addition, continuing claims for the week of Jan. 23 increased slightly. As we have noted before, declines that we had seen in continuing claims had been suspect as it is likely that many of the 27+ weeks unemployed are no longer, or cannot any longer, claim unemployment benefits. However, if initial claims continue to rise (if so, at a minimum rate and certainly not as much as they did in the prior year), and if many of the unemployed decide to receive extended benefits, then we will likely see an increase in continued claims, as we did this morning. 
Although initial claims is viewed by many as a leading indicator, we still expect the Jan. unemployment rate to be in-line or better than the 10% consensus. However, we also view the expected gain in non-farm jobs as unlikely. We believe this was indicated by the ADP employment report yesterday. Unless the unemployment rate and the non-farm jobs figure come in significantly better than expected, we do not foresee a significant one-day bounce (after the market's current dive; S&P 500 is down 2%+). 
The volatility for which we had hoped going into Friday's numbers (benefiting the SPY or S&P 500 futures straddle trading suggestion) has certainly been there.
The productivity figure also released today is another sign that it will take a bit longer for the employment situation to improve. With such high unemployment and a rather flat consumer demand (compared to normal economic conditions), it appears that companies still have room to cut and/or implement additional policies to make their operations even more efficient than what they have done during the last 12-18 months. This basically implies that the state of the economy must change drastically before companies feel more at ease to hire additional workers. Higher productivity is likely due to the large amount of fear that the currently employed have about possibly losing their jobs. Such incentive has driven them to work hard and produce much more than they or their employers expected.   
High unemployment combined with increased efficiency is not positive for the economy, unless we finally realize that this economy is in a transitional state, and government policies intended to artificially boost consumption will likely backfire in the future. 
Lastly, factory orders came in better than expected, but combined with the initial claims and productivity data, it could result in too much inventory going into 2H'10 ... again. 
Let's wait and see just how well the BLS will craft and present the Jan. unemployment data tomorrow. One never knows, the BLS, the government and the main media can pitch anything to create some confidence. It has not worked yet. 

Disclosure: No positions.