Initial claims for unemployment benefits unexpectedly fell below 400,000 last week for the first time in almost six months, signaling firms could be slowing down on layoffs.
But the figures might have been skewed by auto plants being reopened after their usual July maintenance shutdowns, economists say.
First-time jobless claims fell 29,000 in the week ended July 19 to 386,000, from a revised 415,000 the previous week, the Labor Department reported. Economists had expected the number to climb to 415,000, from an initially reported 412,000.
The figure was the lowest since the week ended Feb. 8, when claims hit 378,000. Thursday's number broke a string of 22 consecutive weeks in which filings surpassed 400,000, the longest since 1992, when the economy was coming out of a recession.
The four-week moving average fell to 419,250, the lowest level since the week ended March 8. The average had reached 424,750 the prior week.
"This gives us two consecutive weeks of significant declines, down to a level that is far less concerning," said Richard DeKaser, chief economist at National City.
"But more importantly, although the labor market remains weak, there are encouraging indicators suggesting it is improving, such as massive hiring of temporary workers. The only 'odd man out' in this equation was initial claims, which now is more in harmony with the rest," he added.
Treasury bonds fell slightly after the report, with the yield on the 10-year note higher at 4.17%.
But economists also noted the July weekly jobless claims can be hard to interpret because many automakers close plants to retool, forcing some employees with no paid vacation to seek unemployment benefits at the start of the month. Now, workers are coming back to work, causing applications to decline.
DeKaser also said: "Residual wariness from years of shocks to the economy is starting to fade, prompting companies to re-hire. Meanwhile, no one disputes the postwar economic acceleration, which will gather even more steam with the government's tax-cut package kicking in." He foresees the economy growing at a 3.7% rate in the third quarter and 4.3% rate in the fourth, averaging 4% in the second half.
The majority of economists expects gross domestic product to grow in the second half of 2003. The Blue Chip economic newsletter said earlier this month that U.S. GDP would rise 3.6% in the third quarter and 3.8% in the fourth quarter.