Fewer Americans sought unemployment aid last week, reducing the average number of weekly applications last month to a five-year low.

The drop shows that fewer layoffs are strengthening the job market.

The Labor Department said Thursday that applications fell 10,000 to a seasonally adjusted 332,000.

That cut the four-week average to 346,750, the lowest since March 2008, just several months after the Great Recession began.

The report "provides further evidence of a gradual strengthening in labor market conditions," Paul Dales, senior U.S. economist at Capital Economics, said in a note to clients.

Applications are a proxy for layoffs. They have fallen nearly 13 per cent since November.

At the same time, net hiring has picked up. Employers have added an average of 200,000 jobs per month from November through February, up from about 150,000 a month in the previous four months.

The unemployment rate fell to a four-year low of 7.7 per cent in February from 7.9 per cent the previous month.

About 5.6 million people received benefits in the week ended Feb. 23, the latest data available. That's about 220,000 more than the previous week.

Taxes higher

The improvement in the job market shows employers aren't laying off more workers because of worries about higher taxes or government spending cuts.

In January, Social Security taxes rose two percentage points. Someone earning $50,000 US has about $1,000 less to spend in 2013. A household with two high-paid workers has up to $4,500 less.

On March 1, $44 billion in across-the-board government spending cuts started after the White House and Congress failed to reach a deal to avoid the reductions.

Higher taxes haven't prevented Americans from spending more.

Retail sales jumped in February by the most in five months, the Commerce Department said Wednesday. Much of the increase reflected higher gas prices But even excluding the volatile categories of gas, autos and building supply stores, so-called core retail sales rose strongly.

Economists were encouraged by the report. Many now expect much faster growth in the January-March quarter.

Strong auto sales and a healthy recovery in housing are spurring more hiring and economic growth.

Builders started work on the most homes last year since 2008.

New-home sales jumped 16 per cent in January to the highest level since July 2008.

And home prices, meanwhile, rose by the most in more than six years in the 12 months ending in January, according to real estate data provider CoreLogic.