updated 8/17/2006 1:08:25 PM ET 2006-08-17T17:08:25

The number of newly laid off workers filing claims for unemployment benefits fell last week by the largest amount in a month.

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The Labor Department reported that 312,000 workers applied for jobless benefits, down by 10,000 from the previous week.

That was a larger-than-expected drop but was not likely to change economists’ view that the labor market is softening under the impact of a slowing economy.

The decline of 10,000 in jobless applications was the biggest since a drop of 29,000 in the week of July 15. Even with the drop, the four-week moving average of claims increased slightly to 311,250, compared to 309,500 in the previous week.

The unemployment rate jumped to a five-month high of 4.8 percent in July as employers added just 113,000 new jobs, the fourth-straight month of mediocre job gains.

So far the economic slowdown that began in the spring has not triggered a sharp rise in layoffs. Employers have been content to trim their hiring plans but hang on to existing workers as they wait to see how severe the drop-off in economic activity will become.

The Federal Reserve last week broke a two-year string of increases in a key interest rate, declaring that they believed the slowing economy would lower inflation pressures.

Reports this week that core inflation, which excludes energy and food, had declined at both the wholesale and consumer levels spurred a big stock market rally on Tuesday and Wednesday.

Investors are hoping that the lower inflation readings along with reports showing economic growth is slowing will convince the Fed to refrain from raising interest rates further. However, many private economists believe the Fed will be forced to hike rates at least one more time as insurance that inflation pressures will retreat.

The decrease of 10,000 in claims reversed an increase of 10,000 for the week ending Aug. 5. In that week, eight states and territories reported gains in applications of more than 1,000. The increases were led by Puerto Rico, where claims rose by 4,556; Kentucky, with an increase of 3,046; and North Carolina, where claims rose by 2,053.

Three states reported a decline in claims of 1,000 or more. Claims fell by 2,643 in Missouri, reflecting fewer layoffs in the transportation and furniture industries. Claims were down by 1,449 in Virginia, reflecting fewer layoffs in manufacturing, and dropped by 1,042 in California.

The state data is reported with a lag of one week.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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