By Joyce M. Rosenberg
The Associated Press

NEW YORK - The first signs that business was getting better for Marianne O'Connor's public relations company came early last year.

"I started seeing a little bit in February, just a few nibbles and it was hard to tell if it was sustainable," said O'Connor, owner of Sterling Communications, based in Los Gatos, Calif. But by the summer, "people you hadn't talked to in a while got back in touch and talked about the possibility of business" in the fourth quarter or early this year, she said.

Now O'Connor, who was forced to freeze her hiring for the past three years, is taking on new staff again, joining small-business owners across the country who are leading the rebound in the job market. They're replacing workers lost through layoffs and attrition, and cautiously thinking about further expansion.

Small companies tend to be pioneers of sorts in economic recoveries because they are the ones largely responsible for job growth. But because companies tend to hire only after business has already started to improve, job creation tends to be a lagging indicator of how the overall economy is doing.

O'Connor's firm, which also has offices in San Francisco and outside of Seattle, specializes in working with high-tech businesses and was hurt more by the collapse of the telecom industry rather than the dot-coms.

Through attrition the company went from a staff of about 47 in 1999 to 29 earlier this year.

Now the payroll is back up to 34, and O'Connor's hoping to get back to 37.

"People have spent the last year and a half trying to cut everything they possibly could just to get through the nuclear winter," O'Connor said. "Now, computers need to be upgraded, products are coming to market and people need to know about that."

Maurice Villency, a New York-based upscale furniture retailer, saw a similar cycle.

"We went through ... a pretty big hiring boom during the late '90s and 2000, and postured ourself for new growth," president Eric Villency said. "Then the whole world just changed and the economy just stagnated - from that point on, we were on a hiring freeze."

When business slumped, the company put aside plans to open new stores.

Then, "we saw (sales) growth start to pick up in March, April of (last) year, but it wasn't enough to make us want to grow. At this point, we're ready to start hiring," Villency said.

At the height of the boom, the company had about 330 employees scattered among its offices and eight stores in New York, New Jersey, Connecticut and Washington, D.C. It lost about five to attrition, Villency said.

Now Villency plans to add 20 staffers, and is thinking about opening another store this year. "We wanted to see how we were going to finish the year" before making a decision," he said.

A survey of small businesses by the National Federation of Independent Business found that 12 percent plan to expand their total employment in the coming months, a number that William Dunkelberg, the advocacy's group's chief economist, considers healthy because it indicates that business owners are being conservative.

"You have to start somewhere, but starting with a bang isn't good," Dunkelberg said. "It's headed in the right direction, it's just not a very steep slope."

A conservative approach is evident from the way business owners are looking toward the future. O'Connor, for instance, doesn't dismiss the idea of getting back to the 47 staffers her company had before the downturn - but she's also in no rush.

"That may happen, but I don't want to do that in one year," she said. "We've always been fairly prudent about growth."

In the end, the decision for many companies comes down to necessity - they have to hire more employees to meet the growing demands of their customers.