The number of U.S. workers filing initial claims for unemployment benefits dropped unexpectedly last week, a sign the job market is healing as the economy slowly recovers.

tp-jobless-7738812

Erin McNiff waits to meet with a job counsellor at the California Employment Development Department office in Sacramento, Calif. Initial jobless claims dropped last week. ((Rich Pedroncelli/Associated Press))

The U.S. Labour Department said Thursday that in the week ended Dec. 26, 2009, the number of newly laid-off workers filing for benefits fell by 22,000 to a seasonally adjusted 432,000, the lowest since July 2008. That's much better than the rise to 460,000 that Wall Street economists were expecting.

The four-week moving average was 460,250, a decrease of 5,500 from the previous week's revised average of 465,750. Many economists pay closer attention to the four-week average because it smooths out fluctuations. The four-week figure has now declined for 17 straight weeks, so its steady decline is an encouraging sign that the labour market is on the mend.

Jobless claims tend to indicate the pace of layoffs, and watchers say the level of new claims must get below 425,000 and stay there for several weeks to signal that the economy is actually adding jobs.

New jobless claims have dropped steadily since the fall, raising hopes that the economy may soon begin creating jobs and the unemployment rate could fall. That, in turn, would give households more money to spend and add fuel to the broader economic rebound that began earlier this year.

Overall jobless ranks decline

Meanwhile, the overall number of jobless workers continuing to claim benefits dropped by 57,000 to 4.9 million, also better than the increase that analysts expected.

But the so-called "continuing claims" number does not include millions of people that have used up the regular 26 weeks of benefits typically provided by states, and are receiving extended benefits paid for by the federal government. In some of the most hard-hit states, unemployed workers are entitled to as much as 99 weeks of benefits.

About 4.8 million people were receiving extended benefits in the week ended Dec. 12, the latest data available, an increase of 200,000 from the previous week.

Congress passed yet another extended benefits package in November, which will spare as many as two million people who were scheduled to run out of extended benefits in January and February, the National Employment Law Project estimates. Unless further extensions are made, another million people will run out in March, the group says.

Among the states, Michigan had the largest increase in claims with 8,382, which it attributed to layoffs in the auto industry. California, Florida, Iowa and Missouri saw the next-largest increases. The state data lags initial claims by one week.

Tennessee saw the largest decrease, of 2,972, followed by Illinois, Pennsylvania, Georgia and North Carolina.

With files from The Associated Press