updated 6/15/2006 9:26:26 AM ET 2006-06-15T13:26:26

The number of newly laid off workers filing claims for unemployment benefits fell to the lowest level in nearly four months last week, but the decline was viewed as overstating the strength in the labor market.

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The Labor Department reported that jobless claims dropped to 295,000 last week, a decrease of 8,000 from the previous week. It marked the second straight week that claims have fallen, pushing the total to the lowest level since the week of Feb. 18.

Even with the two-week improvement, economists are still looking for the labor market to gradually weaken in coming months, reflecting a slowdown in overall economic growth.

Signs of that slowdown have already shown up in the surprisingly weak increase of just 75,000 new payroll jobs in May — 100,000 below what economists had expected.

Analysts said businesses have started to trim their hiring plans in response to signs that the economy is slowing under the impact of rising interest rates, surging energy prices and a cooling housing market.

The next step after trimming hiring will be to move to layoffs, a development that would start to push unemployment benefit claims higher. Analysts said they expect to see that occur in coming months.

In the week ending on June 3, jobless claims had dipped by 34,000, reflecting in part the Memorial Day holiday, which meant that state claims offices were open one less day to accept benefit applications.

In that week, Louisiana was the only state reporting an increase of more than 1,000 claims while nine states reported declines in claims applications of 1,000 or more.

Michigan had the biggest drop, a fall of 11,280; followed by California, where claims were down 6,122 because of the holiday-shortened workweek, and Georgia, where claims fell by 2,242 because of fewer layoffs in the textile industry.

The state data lags the national figures by one week.

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