New unemployment claims also rose to 444,000, again exceeding “consensus expectations.”

There was also a report that will receive much less attention, but it is important. Inventories increased in November, the most recent month for which data are available. If inventories were increasing over the Christmas shopping season, and sales were declining, retailers ended the year with excessive inventory. That means reduced production in the first and second quarters of 2010.

2009’s third quarter output (GDP) growth was positive, and many expect a very impressive positive number for the fourth quarter, some as high as five percent. If the fourth quarter does come in with a strong GDP growth rate, it will be hailed as the harbinger of a soon-to-be-realized vigorous recovery.

Don’t buy that, and you won’t be disappointed.

That vigorous recovery may eventually come, but it is unlikely to come in 2010. Whatever growth generated in second-half of 2009 was government-supported consumption, ephemeral, not a solid foundation for economic growth, certainly not the basis for sustained vigorous job growth.

A vigorous recovery will be a result of investment, technological growth, and improved productivity. Recent productivity numbers have been encouraging, but in large part, they are probably the result of firms downsizing. Technological growth and solid job growth require investment, and that is the problem.

Our banks are in no condition to fund any vigorous expansion. Indeed, bank loans have been declining since October 2008. Businesses and consumers remain over-leveraged, unable to increase spending on consumption, unable to invest, desperately trying to reduce debt.

We won’t see a vigorous recovery until balance sheets are improved and banks can lend.

Government programs haven’t helped. Most of the spending programs have been consumption based instead of investment based. Some have been outright counterproductive, programs such as foreclosure-delay, paying interest on bank deposits at the Fed, and cash for clunkers. Even worse, the banking problem has been ignored, and now new taxes on banks are being discussed. That is as bad an idea as I’ve heard in a long time.

Some would argue that these events reflect the worldwide economic decline and have little to do with California. Certainly, auto sales are down everywhere, and many plants are closing. Similarly, trade is down, and most, perhaps all, ports are seeing less traffic.

California should be a better competitor. California’s location gives the State’s ports a natural advantage. Snow is not going to block rail delivery from Southern California, and we have excellent rail infrastructure. Ports in Oregon, Washington, and Canada cannot say this. But, California has not invested in Port infrastructure. We cannot, or will not, take the largest container vessels or tankers. The strategy in a down market should be to increase market share. We will probably be losing market share for a decade.

California represents a huge market for cars, and our location on the Pacific Rim makes the State a logical place for Japanese and Korean plants. If the State was competitive, we would expect to see at least a few plants. Instead, we will soon see zero plants.

Everyone is concerned about California’s budget, but no one seems to be concerned about California’s long-run recovery. We need a realistic economic development plan that restores California’s competitive position.