The number of new people signing up for unemployment benefits (search) rose last week. But even with the increase, claims are still hovering at a level that points to a recovery in the jobs market.

The Labor Department (search) reported Thursday that new applications for unemployment insurance increased by a seasonally adjusted 12,000 to 352,000 for the week ending June 5.

Although the increase in filings comes after two straight weeks of declines, the 352,000 level of claims is still well below the 424,000 filed for the same week a year ago, showing that the layoffs picture has improved considerably from last year.

Last year, claims reached a high of 444,000 in the middle of April and have slowly drifted downward.

Economists were expecting claims to fall last week. Filings for last week, however, covered the period including the Memorial Day holiday, a time — as in all holiday weeks — that can present difficulties adjusting the data for seasonal factors, a Labor Department analyst said.

The number of people that have been drawing unemployment insurance fell by 106,000 to 2.88 million for the week ending May 29, the most recent period for which that information is available. That marked the lowest level in so-called "continued" claims since the week ending May 19, 2001.

With the economy growing smartly and the labor market in recovery, economists widely expect the Federal Reserve will boost short-term interest rates for the first time in four years at its next meeting on June 29-30. Most economists are expecting a one-quarter percentage point increase.

Fed Chairman Alan Greenspan (search), in a speech Tuesday, said although he still expects the Fed will be able to push interest rates up gradually to combat inflation, policy-makers are prepared to take more aggressive action should the inflation outlook turn worse than they now expect.

The Fed for nearly a year has been holding its main lever for influencing economic activity at 1 percent, a 46-year low, to help the economy get back to full throttle. The economy, which fell into recession in 2001, was jolted by the Sept. 11, 2001, terror attacks and a wave of accounting scandals, didn't stage a material rebound until the second half of last year.

The labor market, which had been stuck in the doldrums over the last three years, has been showing strong signs recently that it is getting back in the groove.

Greenspan, in his remarks Tuesday, welcomed the recent, sizable increases in the nation's payrolls. In May, the economy added 248,000 jobs.

"The exceptional reluctance to expand payrolls also appears to have waned this year and businesses are once again hiring with some vigor," he said. Still, the Fed chairman said companies' use of temporary workers suggests continuing wariness on the part of businesses about the sturdiness of the recovery.