U.S. firms announced 20 percent fewer layoffs in March after a jump in the prior month, suggesting the labor market is recovering in fits and starts.

Employment consulting firm Challenger, Gray & Christmas Inc. (search) said employers announced 86,396 job cuts last month, down from 108,387 in February, but 27 percent higher than in March 2004.

The data come just a few days after the government released its tally of payrolls for March, which showed 110,000 jobs were created in the month, half of Wall Street's median estimate.

"The only clear picture we have from the job-cut numbers this year is that employers appear to be confused about the direction this economy is taking," said John A. Challenger (search), chief executive officer of Challenger, Gray & Christmas.

The report said massive government budget deficits appeared to be taking their toll on hiring. The biggest number of job cuts came from the government and its largest business partner, the aerospace and defense industry.

While the U.S. economy has been growing robustly over the past two years, the employment sector has been unusually slow in bouncing back.

Analysts are hard pressed to find a reason for the hiring shortage — some point to the departure of manufacturing work overseas, others link the trend to stronger productivity.

Where many economists do agree, at least according to recent experience, is that the new burst of hiring that many expected in the past now looks increasingly out of reach.

"(The Challenger) release provides some interesting data but does not alter our view of the labor market — things are improving, but a surge in employment is not likely," said Drew Matus, U.S. financial markets economist at Lehman Brothers (search).