Company payrolls rose in February, the first increase in nine months, according to the U.S. Department of Labor. Analysts say that this is the strongest evidence yet of recovery from the recession that began in March 2001. The Labor Department cautioned against reading too much into the February report, since milder weather resulted in firms adding jobs particularly, in the construction industry. Even though the economy is improving, unemployment could continue to rise if accessions to the labor market exceed employment growth.

Labor market conditions are evaluated based upon a household and payroll survey. Payroll employment started decreasing in July, even in months when the unemployment rate was falling, because fewer people were looking for work. The employment loss was moderate until the weeks after the September 11 attacks. Employment fell rapidly in the weeks following the attacks, with the job loss greater than 900,000 jobs in the last quarter of 2001.

There were a number of important gains in the labor market last month. Service employment increased by 97,000, the largest increase since August. The health care industry added 34,000 jobs. Airlines and real estate firms increased the number employed by 5,000. Finally, temporary agencies, considered to be a bellwether for the labor market, experienced a 14,000 jump in employment - the first increase in sixteen months. In contrast, manufacturing, one of the industries hit hardest by the recession, cut 50,000 more jobs from its payrolls, although the loss was the smallest since late 2000. Manufacturing employment has fallen by 1.7 million since the summer of 2000.

Most economists expect the recovery to be modest, since consumer spending has been consistently strong and the recession quite mild. Unemployment may continue to increase without the strong employment growth that accompanies a typical recovery. Forecasters believe the unemployment rate could rise to 6 percent by the end of the year.

The weakening in the labor market has resulted in a slight slowing of wage growth. Wage growth over the last year was 3.1 percent. Moderate wage growth couple with a decline in inflation has resulted in an increase in workers' purchasing power.

(Updated May 1, 2002)