The number of people seeking unemployment benefits fell last week to its lowest level since April 2008, the government said. The report suggested that layoffs are slowing further and that employers may be ready to hire more aggressively in the new year.
A gauge of future economic activity also rose sharply last month. And the economy is thought to be growing in the current quarter much faster than the 1.8 per cent annual rate that the government now estimates for last summer.
"The economy is carrying some clear momentum into 2012," said economist Joel Naroff of Naroff Economic Advisors. "The consistent decline in the weekly lines at the unemployment offices is pointing to a firming in the labour markets, fewer layoffs, more jobs being added and most importantly, a decline in the unemployment rate."
First-time applications for unemployment benefits last week fell 4,000 to a seasonally adjusted 364,000, the Labor Department said Thursday. It was the third straight weekly drop. The four-week moving average, a less volatile gauge, fell for the 11th time in 13 weeks. At 380,250, it's the lowest since June 2008.
Unemployment applications reflect the pace of layoffs. Job cuts have fallen sharply since the recession, though many employers have been slow to hire more freely.
The steady decline in applications shows that the economy is now improving consistently, 2 1/2 years after the Great Recession ended. And it may herald a further decline in the unemployment rate.
The rate, which had hovered near 9 per cent since the end of the recession, fell sharply in November from 9 per cent to 8.6 per cent. The nation has added at least 100,000 net jobs each month from July through November, the first such five-month streak since 2006.
"When you fire fewer people, hiring unquestionably follows," said Dan Greenhaus, chief global strategist at BTIG LLC.
The Conference Board's index of leading economic indicators rose strongly in November for the second straight month. The economy is gaining momentum, and the risks of a recession are receding, economists with the business research group said.
The index puts the economy on track to grow at a 4 per cent annual rate in the quarter ending this month, according to Ian Shepherdson, chief U.S. economist with High Frequency Economics.
That's a sharp increase from the 1.8 per cent rate at which the government now estimates the economy grew in the July-September period. The economy grew more slowly than previously thought last quarter because consumers spent less than the government had first estimated.
Besides a brightening job market, the positive factors include strong holiday shopping, further gains in factory production and cheaper gas prices, which leave consumers with more money to spend on other items.
The 1.8 per cent annual growth rate in the third quarter still was the fastest this year, up from 1.3 per cent in the spring. A big factor was that the government now estimates that consumers spent less on hospital costs.
Economic growth has not topped 4 per cent since the first quarter of 2006, when it surged 5.1 per cent. It hit a post-recession peak of 3.9 per cent in January-March 2010.
If unemployment applications continue declining, Greenhaus said, the number of jobs created each month will rise to 200,000 and the unemployment rate might fall as low as 8 per cent before November's elections.
Stronger growth would be needed to significantly drive down the unemployment rate. The 8.6 per cent rate is now the lowest since March 2009, two months after President Barack Obama took office.
Still, Obama faces a re-election vote in less than a year and a presidential campaign that will turn on the economy. He may face voters next fall with the highest unemployment of a sitting president seeking election since World War II. Unemployment was 7.8 per cent when Obama took office in January 2009.
The pace of recovery remains modest, leaving the economy vulnerable to shocks, economists say. The biggest threat is Europe, where the 17 nations that use the common euro currency are struggling to deal with debt problems and keep their currency union together. Many believe Europe already has entered another recession, which would be bad news for U.S. companies that export to that region.
Another source of uncertainty for 2012 is what Congress will end up doing about extending the Social Security payroll tax cut. The tax cut, which benefits 160 million Americans, is set to expire Jan. 1. Extended unemployment benefits for the long-term unemployed also expire on that date.
About 6.7 million people are receiving unemployment benefits. About 2.2 million of them will lose their benefits by mid-February and 3.6 million others will lose theirs by the end of March if Congress doesn't extend the emergency benefits.
If lawmakers don't renew the tax cut and the extended benefits, it could lower economic growth by as much a full percentage point in 2012.
Congress appeared ready this week to go home without extending the emergency programs. House Republicans rejected a two-month extension passed by a bipartisan majority in the Senate. President Barack Obama has called on lawmakers to approve the short-term measure so that they will have time to negotiate a full-year extension.
Applications for unemployment benefits would need to fall below 375,000 consistently to lower the unemployment rate, many believe. The four-week moving average for new claims has exceeded that number since June 2008.
And weak hiring doesn't always appear in unemployment claims data. Employers slashed payrolls deeply during the recession. If they're worried about the slow pace of recovery, they may hold off layoffs — but not hire, either.
Follow Daniel Wagner at www.twitter.com/wagnerreports .