As I write this, the major U.S. stock markets are finishing the first quarter of 2010 with a positive showing. In fact, the Dow industrials gained 4.1 percent during the first three months of the year, the best first-quarter showing since 1999.

So, is all of this optimism warranted? Perhaps, but it’s important to keep the economic recovery in perspective.

Corporate earnings did come in stronger than expected, but the bar was set low by analysts. It was actually fairly easy for most corporations to show 2010 earnings that looked good — especially comparing year over year numbers. With the 2009 first-quarter numbers being so bad, reporting better 2010 earnings was practically a slam dunk.

Unfortunately, another reason corporate earnings were better is that companies were quick to get lean by laying off workers. Now, a year or so later, order flow is improving, top-line (revenues) growth is improving and companies are getting by with fewer workers.

Capital expenditures during the past year were limited mostly to technologies that allowed for immediate productivity gains. In other words, companies bought technology to get more work out of fewer people. As such, the pace of hiring and/or rehiring has continued to be slower than hoped.

New layoffs have been slowing, but the numbers don’t look good. As of today, California’s unemployment rate stands at 12.4 percent (the fifth-highest in the nation), and Santa Barbara County is at 10.4 percent. More disturbing is that eight other California counties stand at higher than 20 percent unemployment.

The major obstacle to a solid and long-lasting expansion is jobs followed by consumer spending. Fortunately, there has been a small increase in consumer spending in spite of the lingering unemployment. Apparently, those people who still have jobs are feeling more confident that their jobs are stable. As their comfort level has gotten better, they have been more willing to spend.

On the real estate front, there are very few bright spots locally. Activity levels and closed transactions are relatively strong at the lower price point of our market — $800,000 or less. There is currently a perfect (good) storm for first-time homebuyers in the form of lower prices, federal tax incentives and historically low interest rates. Those who have cash or can present good credit scores along with verifiable income can pick up good buys right now.

At other price points, activity and closed deals are spotty, and it’s safe to say that it continues to be a buyer’s market. A few years ago, Santa Barbara had a fairly robust “move-up” market as homeowners sold at inflated prices and leveraged their way into an even more expensive home. That type of real estate activity has slowed dramatically — and understandably.

For now, most of America seems to be going through the wrenching change of deleveraging. This change in consumer behavior, coupled with high unemployment, is likely to affect economic activity and consumption for some time to come.

As such, look for a continued recovery — just at a very slow pace.

— Bill Masho is the broker/owner of Masho Associates. He can be reached at 805.895.4362.