She still can't read the words at one glance though. She can read them by identifying the first letter and its sound then she combines the subsequent sounds altogether then there's the word.

This brings to mind a conversion a teacher had with us when I was in school, many years ago. She was talking about the different approaches to teaching reading and her preference was actually that they start reading in the way your niece is, by recognising the letters and the sounds they make as they read the word. Recognition of the word at a glance will then come over time. If they learn by recognition alone, then they don't always differentiate the words so they might see the word "carrot" regularly, then when they see "parrot", which has the same pattern, they would read it as "carrot".

I think it's a good way for her to be reading, because, in my experience, it helps as they moves onto longer words. They gain more independence and confidence in reading, that way.