Weekly applications fell 27,000 to a seasonally adjusted 341,000, the Labor Department said Thursday. Outside a few weeks last month affected by seasonal distortions, that's the lowest level in nearly five years.
The four-week average, which smooths week-to-week fluctuations, stayed near a five-year low.
Economists were encouraged by the decline but want to see the progress sustained and more jobs created. Since the recession ended in June 2009, the job market has shown brief bursts of improvement in the winter months only to falter in the spring.
In addition, the huge snowstorm that affected the Northeastern states over the weekend could push up applications in the coming weeks. The latest report covered the week ended Feb. 9, prior to when the storm hit.
"This is tentatively a positive signal for the labour market," Daniel Silver, an economist at JPMorgan Chase, said in a note to clients.
Falling applications signal fewer layoffs. More hiring usually follows, but not always.
Since November, the four-week average has declined 5 per cent to 352,500 applications. And job growth has increased to an average of 200,000 net positions a month from November through January, up from 150,000 in the previous three months.
But the employment report measures net job gains, which equals total hiring minus layoffs, quits and other separations.
A decline in layoffs can boost net job gains even when total hiring is flat or down. A separate Labor Department report earlier this week showed that layoffs fell to a 10-year low in December. Overall hiring, however, also declined.
Many companies may be more cautious about hiring now that a 2 percentage point increase in Social Security taxes is cutting consumers' take-home pay. That could slow growth.
Still, if applications remain consistently below 350,000, net job growth should increase, said Carl Riccadonna, an economist at Deutsche Bank. Monthly gains could rise to an average of 225,000 per month, he added.
Gains at that level should steadily lower the still-high unemployment rate, which ticked up to 7.9 per cent in January from 7.8 per cent in December.
Economists expect the rate will decline if hiring continues at last year's monthly pace of 180,000. The rate fell 0.7 percentage points in 2012.
The number of people receiving benefits has increased. More than 5.9 million people received benefits in the week ended Jan. 26, the latest data available. That was about 325,000 more than the previous week.
The economy contracted at an annual rate of 0.1 per cent in the October-December quarter, hurt by a sharp cut in defence spending, fewer exports and sluggish growth in company stockpiles. That's much slower than the 3.1 per cent growth recorded in the July-September period.
Still, economists expect that figure will be revised in the coming months to show a small increase, after more data about last quarter has been reported. Economists at Barclays Capital estimate the economy expanded 0.5 per cent in the fourth quarter.
Growth will likely pick up a bit in the January-March quarter to an annual rate of 1.5 per cent, analysts forecast. That's better than the fourth quarter but below last year's expansion of 2.2 per cent.