The number of people applying for U.S. unemployment benefits decreased by 42,000 last week to a seasonally adjusted 338,000, the biggest drop since November 2012, according to the Labor Department.
But economists say the figures from late November and December could be warped by the usual seasonal volatility around the Thanksgiving, Christmas and New Year's holidays.
The Labor Department report come days before the Dec. 28 expiration of emergency unemployment benefits, a federal program cut that was part of the two-year spending bill Congress passed earlier this month. The extended benefits assisted 1.3 million long-term unemployed Americans.
Claims had jumped 75,000 over the two weeks that ended Dec. 14 before dropping last week.
The Labor Department struggles to account for seasonal hiring by retailers and other businesses and for temporary layoffs of cafeteria workers and other employees at schools that close for the holidays.
Unemployment claims are a proxy for layoffs, and recent declines are consistent with a solid job market. "The underlying trend remains favorable," said Ryan Sweet, an economist at Moody's Analytics in West Chester, Pennsylvania. "We will be able to muster stronger job growth in 2014."
Thursday's report supports expectations for faster economic growth next year. “With labor markets on the mend and consumer confidence on the rise, we look for broader economic improvement to continue pushing claims (lower)," said Gennadiy Goldberg, an analyst at TD Securities in New York.
The economy has shown signs of improvement, and the Federal Reserve announced Dec. 18 that it would reduce its stimulus spending on bonds by $10 billion — to $75 billion a month. The economy expanded at a 4.1 percent annual pace from July through September, the fastest rate since late 2011 and much greater than previously thought.
The economy has shown signs of health recently, adding an average of 204,000 jobs per month from August through November, an improvement from earlier this year.
The unemployment rate fell in November to a five-year low of 7 percent. Still, that remains above the 5 percent to 6 percent rate that would signal a normal job market. And long-term unemployment remains a big blot on the economy's performance: Nearly 4.1 million Americans have been unemployed for six months or more.
But for the long-term unemployed, the latest figures may be a bitter pill as many studies suggest that the longer a person is out of work, the more difficult it is to find a job, particularly for those considered 'old' by employers.
Congress authorized the Emergency Unemployment Compensation Program in 2008 as the country teetered on the brink of the deepest recession in modern times.
For the unemployed, the program provided federal benefits once their state unemployment insurance ran out. The program allowed individuals to collect benefits for up to 99 weeks. The program has since been scaled back, and states now offer their insurance for anywhere from 19 weeks to 73 weeks, according to the Center for Budget and Policy Priorities. Funding the program through 2014 would have cost approximately $25.2 billion, according to the nonpartisan Congressional Budget Office.
Al Jazeera and wire services