The number of Americans claiming new unemployment benefits last week dropped below the 400,000 level for the first time since early April, a hopeful sign for the economy which has struggled to regain momentum.
Initial claims for state unemployment benefits dropped 24,000 to a seasonally adjusted 398,000, the Labor Department said on Thursday.
Economists had forecast claims falling to 415,000.
The labor market took a beating in May and June, with the increase in nonfarm payrolls totaling only 43,000.
The drop in jobless claims last week below the 400,000 mark that is normally associated with a stable labor market will be welcome news for the economy after a recent string of weak data.
U.S. stock index futures rose on the report, while prices for Treasury debt pared gains.
We've been surprised on the upside the past several weeks, but this drop does signal that in the most recent couple of weeks, employers are not laying off large numbers of individuals, said Patrick O'Keefe, director of economic research at J.H. Cohn in New York.
What we're seeing is that the claims levels are returning to their more normal level, which is in a positive direction.
But an uncertain economic outlook, which has been further clouded by deadlocked talks to raise the nation's borrowing limit and avoid a damaging debt default and credit rating downgrade could hamper progress in the labor market.
The government is expected to report on Friday that the economy grew at a 1.8 percent annual rate, according to a Reuters survey, after a tepid 1.9 percent pace in the first three months of the year.
On Wednesday, the Federal Reserve said growth slowed in much of the country in June and early July.
A Labor Department official said there were no special factors in last week's jobless claims data.
The four-week moving average of claims, considered a better measure of labor market trends, fell 8,500 to 413,750.
The number of people still receiving benefits under regular state programs after an initial week of aid declined 17,000 to 3.70 million in the week ended July 16.
Data for the so-called continuing claims covered the survey week for the household survey from which the unemployment rate is derived. The jobless rate rose to 9.2 percent in June from 9.1 percent in May.
The number of Americans on emergency unemployment benefits rose 18,427 to 3.17 million in the week ended July 9, the latest week for which data is available.
A total of 7.65 million people were claiming unemployment benefits during that period under all programs, up 320,152 from the prior week.
(Reporting by Lucia Mutikani, Editing by Andrea Ricci)