Microsoft Corp. (MSFT) Chief Executive Steve Ballmer said Friday that a permanently changed economy will be slow to recover from the recession, but he also cited signs of improvement and issued an upbeat outlook for long-term information-technology opportunities.

"What we see today feels like a new normal," Ballmer said about the economy in an address during a luncheon held by the Boston College Chief Executives' Club of Boston. "I don't think we're through all the issues."

Ballmer also addressed the rationale behind Microsoft's expansion into retail stores, which is expected to start soon with an opening in Scottsdale, Ariz., and provided an update on the company's pending search deal with Yahoo Inc. (YHOO)

"It's going along," Ballmer said about the regulatory process. "Europe's a little confusing because the Europeans have to decide who has jurisdiction."

In July, Microsoft and Yahoo announced a 10-year deal, under which Microsoft would operate the search technology across its own and Yahoo's sites, in return for a revenue-sharing agreement. The companies hope to close the deal in early 2010.

Regarding the economy, he noted that corporate spending on technology was badly hurt by the downturn. "I think business is going to be slow to start rehiring" and investing, he said.

Microsoft, which has about 95,000 employees, will also move more slowly in creating jobs in this "new normal" environment, Ballmer said. He said to expect to see "small thousands" of jobs created per year as opposed to tens of thousands.

Despite the economic challenges, Ballmer also noted some areas of improvement, such as in spending on consumer electronics. "We see some stability at this stage, and I think the chance for real growth."

Over the long haul, Ballmer made a case for a big, expanding role for information technology. He talked about a range of potential uses and ways it can help in drug discovery, the energy field, education and other applications.

He said he sees tech innovation having a bigger impact on society in the next five to 10 years than it did in the prior five to 10 years.

In the nearer term, Microsoft will soon follow a trail blazed by rival Apple Inc. (AAPL) by opening its first store. Asked during Friday's luncheon why this is the right time for such a move, Ballmer said Microsoft's board of directors feels "yesterday was the right time."

The retail channel has shrunk in the U.S. and other countries, and Microsoft wants to connect directly with customers.

"We'll open a couple stores, try to improve, open a couple more stores," Ballmer said. "Hopefully over time that leads to success."

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com