The number of U.S. workers filing new claims for jobless benefits last week fell to the lowest level since January, the government said on Thursday, evidence the hard-hit labor market may be slowly improving.

Initial claims for state unemployment insurance dropped to 502,000 in the week ended November 7 from a revised 514,000 the prior week. Analysts polled by Reuters had expected claims to slip to 510,000 from an initially reported 512,000.

It shows that companies are cutting jobs at a slower pace than during the financial crisis, said Gary Thayer, chief macrostrategist for Wells Fargo Advisors in St. Louis. We're trending in the right direction, but we are probably several months away from (rising) monthly payrolls numbers.

The U.S. economy lost 190,000 jobs last month and the unemployment rate hit a 26-1/2-year high of 10.2 percent. While employers are cutting jobs at a slower pace than they were at the start of the year, economists expect the jobless rate to move higher before peaking in mid-2010.

Rising unemployment is causing a political headache for President Barack Obama and his fellow Democrats, even though the economy appears to have snapped out of its deepest downturn since the 1930s, with growth at an annual rate of 3.5 percent in the third quarter.

Some economist are concerned the country is gearing up for a jobless recovery, which would hit U.S. consumers hard.

Wal-Mart Stores Inc , the world's largest retailer, on Thursday said its customers' are worried about unemployment as it forecast earnings for the current holiday quarter that could miss Wall Street estimates. The comments spurred concerns about overall consumer spending, which accounts for roughly 70 percent of U.S. economic activity.

Stocks fell, weighed down by the Wal-Mart news and by a rise in the U.S. dollar that pressured commodity-related shares. <.N>

(For a chart relating consumer sentiment and jobless claims, please see

The Democratic Party lost two state governorships to Republicans in elections this month that focused heavily on the economy, and on Thursday, Obama announced the White House would hold a forum on jobs growth in December.

We all know that there are limits to what government can and should do even during such difficult times, but we have an obligation to consider every additional responsible step that we can to encourage and accelerate job creation in this country, Obama said.


While initial claims for jobless benefits are down sharply from the March peak of 674,000, analysts say they need to drop below 400,000 to offer a signal of job creation.

The larger question is, Are new jobs becoming available? I don't think they are, said Bruce Bittles, chief investment strategist for Robert W. Baird & Co in Nashville, Tennessee.

The four-week moving average of new claims, considered a better gauge of underlying trends as it irons out week-to-week volatility, decreased to 519,750, the lowest since the week ended November 29, 2008. It has been dropping since August.

The number of workers still collecting benefits after an initial week of aid also fell. These so-called continued claims dropped to 5.63 million in the week ended October 31, the lowest level since March.

The decline in continued claims, which has been falling since early September, hints at some improvement in the labor market, but it also reflects the unemployed workers who have exhausted their 26 weeks of typical aid and are no longer counted.

According to the Labor Department, an additional 4.04 million people claimed unemployment benefits through temporary aid extension programs in the week ending October 24, the most recent week for which statistics were available.

Last week, Congress approved legislation that would further extend benefits by up to 20 weeks, the third time they have been extended since the recession began in late 2007.

(Additional reporting by Andy Sullivan, Nancy Waitz and Lucia Mutikani, and by Ryan Vlastelica and Ellen Freilich in New York; Editing by Leslie Adler)