The number of workers filing first-time unemployment benefits fell to an eight-month low last week.
Initial jobless claims dropped 23,000 to 382,000 in the week ended Oct. 4, their lowest level since early February, the Labor Department said. Analysts were expecting 390,000 claims.
Treasuries were lower on the news, as it suggests the labor market may finally be getting some strength. The 10-year note was recently down 20/32 to 99 15/32, yielding 4.32%.
"Hopefully, this is the start of a trend down in the number of new claims," said Brian Jones, an economist at Salomon Smith Barney. "But it is going to take some time."
The four-week average of claims -- which adjusts for volatility -- decreased to 393,500, its lowest level since early February. However, continuing claims were basically unchanged at 3.642 million.
"What you would want to see is both of those series starting to head lower," said Jones.
Nevertheless, there is already evidence the pace of layoffs is subsiding. According to outplacement firm Challenger, Gray & Christmas, there were about 3,400 fewer job cuts in September than in August.
Significantly, Challenger, Gray said tech layoffs were down 50% this year compared to a year ago.
After an upbeat employment report for September, experts are waiting for further evidence of a jobs recovery in the October report. Drew Matus, an economist at Lehman Brothers, expects the economy to add 35,000 new jobs this month, having tacked on 57,000 payrolls in the previous month.
"If it is not improving, the labor market is stabilizing," Matus said.