Economic Outlook: Partly Cloudy

The U.S. economy churned out new jobs at a moderate rate in March but the unemployment rate rose two-tenths of a percentage point to 5.7 percent, the government said Friday.

The numbers suggest the labor market is lagging behind the rapid pace of growth elsewhere in the economy.

The Labor Department said the number of workers on U.S. payrolls grew by 58,000 in March, a slightly larger increase than the 41,000 projected by private economists in a Reuters survey.

But the number appeared far less impressive in light of a huge downward revision to February payrolls. The government said February payrolls fell by 2,000 - a far worse showing than the 66,000 gain it estimated a month ago.

The Labor Department did not offer an explanation for the substantial revision to February's payrolls number.

In March, employment gains in services and local government tempered job losses in construction and manufacturing. The 58,000 new jobs added last month marked the first gain in seven months.

Businesses slashed thousands of jobs to cope with the recession, and company profits were hit hard. So economists say companies will be reluctant to quickly hire back laid-off workers until profits recover and executives are convinced the recovery is here to stay.

As it did during the last recession that ended in 1991, the nation's unemployment rate still could rise in coming months as businesses regain financial strength. Some economists predict the rate will climb to more than 6 percent before a prolonged drop-off occurs.

To revive the economy, the Federal Reserve slashed interest rates 11 times last year, pushing down some short-term rates to the lowest levels seen in four decades, making borrowing attractive for many businesses and consumers.

Some economists say the Fed may begin to raise short-term interest rate as early as May or June. But others aren't so sure. They wonder whether consumers who snapped up big-ticket goods throughout the slump will continue to spend briskly, a factor affecting the strength of the recovery.

Job cuts continued at the nation's factories with a loss of 38,000, but it was at the slowest pace since late 2000. Losses have averaged 111,000 a month from January 2001 to January 2002.

In manufacturing, employment in electronic equipment dropped by 10,000 and industrial machinery fell by 7,000 — much smaller than average losses during the past year.

Several manufacturing industries had small gains in March after months of losses, including stone, clay and glass with 2,000; primary metals with 2,000; and rubber and miscellaneous plastics with 4,000. Transportation equipment lost 12,000 jobs in March, primarily in aircraft and parts. Since Sept. 11, aircraft manufacturers have lost 42,000 jobs.

Construction employment fell by 37,000 in March, following an increase the month before. Virtually all the jobs lost were in heavy construction.

But employment in services increased by 118,000 last month — the largest gain in a year and a half. Employment in that sector has nearly recovered from the combined loss of 245,000 jobs in October and November.

In services, temporary employment firms added 69,000 jobs — the second consecutive month of growth in an industry that has lost nearly a fifth of its jobs since September 2000. Health services employment continued to increase last month, rising by 32,000.

Local government education added 27,000 jobs in March, about twice the monthly average in the last year. But air transportation services jobs were cut in March, reversing gains over the last two months. This followed losses of 111,000 in the last three months of the year.