WASHINGTON - U.S. employers are slowly hiring workers, despite the worst labor market in 26 years, according to a survey on Monday that suggested companies are becoming more confident in the economy's prospects.

The survey by global outplacement consultancy Challenger, Gray & Christmas showed that in the nine months through September, employers announced plans to hire 169,385 workers this year, 88 percent more than the planned hires announced in the same period in 2008.

Of course, these figures represent just a tiny fraction of the hiring and available jobs out there. There is no doubt that this is a tight job market. However, it would be a mistake to assume that no one is hiring, said John Challenger, chief executive officer of Challenger, Gray & Christmas.

The weak labor market remains the missing link in the economy's recovery from a recession that started at the end of of 2007. The economy is believed to have started growing again in the third quarter, driven by the rebuilding of inventories and the government's $787 billion stimulus package.

With unemployment remaining elevated and pushing down household incomes, there are fears that the economy would recover at a sluggish pace. The unemployment rate rose to 9.8 percent in September, the highest level in 26 years, from 9.7 percent in August.

The Challenger, Gray & Christmas survey showed most of the hiring plans this year came from the retail sector, one area that has been hardest hit by the recession. Employers in the retail sector announced plans to hire 33,640 workers, compared to less than 4,000 in all of 2008.

It was followed by the government and non-profit sector, with plans to add 28,469 workers. The entertainment and leisure industry planned hiring 22,370 new workers, the survey showed.

Within the hidden job market are companies that plan to fill positions through employee referrals, those that use recruiters to find the right candidates, as well as those that have no plans to hire, but will do so if the right person comes along, said Challenger.

The labor market is extremely fluid, even in the worst of times. Companies are constantly adding and subtracting workers, sometimes simultaneously.

(Reporting by Lucia Mutikani; editing by Diane Craft)