The U.S. unemployment rate fell in January for the first time in eight months, but the number of workers on payrolls outside the farm sector fell a bit more than expected, the government said Friday.

The Labor Department said the jobless rate declined to 5.6 percent from its six-year high of 5.8 percent reached in December. U.S. economists had projected the rate would rise to 5.9 percent.

But the report showed that the 0.2 percentage point drop in the unemployment rate occurred not because employment went up but because 924,000 job seekers gave up looking for work.

"This morning's employment report is considerably weaker than the headline-grabbing decline in the unemployment rate suggests," said Wachovia Securities economist Mark Vitner. "Many jobseekers are giving up or at least postponing their job search until economic conditions improve."

Meanwhile, the number of workers on payrolls outside the farm sector decreased by 89,000 in January after a 130,000 drop in December. That number was steeper than the 27,000 fall projected by U.S. economists in a Reuters survey.

Rate Could Hit 6.5 Percent Before Dropping

The jobs report offered mixed news about the economy, which analysts have increasingly said appears poised for a recovery from a recession that began in March.

In an additional sign that the job market remains weak, the average workweek shrank for employees both at private companies overall and in the factory sector

Analysts say the nearly yearlong recession, which started in March, could be ending. The government reported this week that the U.S. economy managed to eke out a 0.2 percent increase in growth in the final three months of the year, bolstering hopes of recovery.

But Labor Department officials cautioned against reading too much into January's positive employment news. January tends to reflect large seasonal movements after the holidays, and that can skew the outlook on the job market.

Analysts think the unemployment rate, which hit a six-year high in December before last month's drop, probably will continue to rise into the summer to as high as 6.5 percent. That's because the level of job growth in the early stages of the recovery will not be enough to accommodate new workers as they enter the job market.

The jobs report comes as a number of other economic indicators point to the end of the U.S. recession.

The Institute for Supply Management said Friday its index of business activity rose to 49.9 in January from 48.1 the month before, suggesting that the battered manufacturing sector may be ready to emerge from a 17-month slump. An index above 50 indicates manufacturing growth.

Another report Friday confirmed that construction remains strong. The Commerce Department said construction activity edged up 0.2 percent in December, with much of the strength coming from spending on condominiums, apartments and other multifamily housing, which rose a strong 5 percent. Single-family home construction slipped.

Spending on big government projects and commercial construction, such as offices and motels, by private builders dipped last month.

For all of 2001, construction spending rose 5.8 percent, following a 6.8 percent increase in 2000. While last year's performance marked the weakest for builders since 1995, it was still considered solid for a recession period.

Gains in Retailing Jobs

According to the Labor Department, retailing posted a seasonally adjusted gain of 62,000 jobs in January following job losses of 241,000 in the last five months of 2001. Holiday hiring in department and apparel stores and other shops had been very light, so there were fewer layoffs than usual in January, resulting in employment gains.

The nation's housing market has continued to flourish despite the economic downturn. But poor weather in January caused construction firms to cut 54,000 jobs. But employment in finance, insurance and real estate edged up by 9,000 as low interest rates continued to entice home buyers.

Air transportation actually grew by 8,000 jobs as the very light holiday hiring in air freight resulted in fewer layoffs than usual. Employment related to commercial airlines continued to fall, however.

The manufacturing industry also kept shedding jobs in January, though the loss of 89,000 was the slowest decline since September. The largest declines were in transportation equipment as motor vehicle plants had temporary shutdowns and aircraft factories also continued to cut jobs.

Reuters and the Associated Press contributed to this report.