updated 9/7/2006 6:49:09 PM ET 2006-09-07T22:49:09

The number of newly laid off workers filing claims for unemployment benefits dropped by a bigger-than-expected amount last week, signaling continuing labor market strength despite a general economic slowdown.

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The government reported that applications for jobless benefits totaled 310,000, down 9,000 from the previous week. It was the biggest decline in seven weeks and was a larger improvement than analysts had been expecting.

Many businesses, faced with a slowing economy, have reduced their plans to hire new workers but so far have not resorted to large-scale reductions in existing payrolls.

“While hiring has evidently slowed versus earlier in the year, the pace of layoffs does not appear to have changed much since the post-Katrina spike last September-October,” said Stephen Stanley, chief economist at RBS Greenwich Capital.

The good news on jobless claims failed to lift spirits on Wall Street. Stocks fell for a second straight session Thursday as investors continued to worry about inflation and the economic slowdown. The Dow Jones industrial average fell 74.76 points to close at 11,331.44.

The total number of jobless claims was the lowest since 299,000 people showed up at unemployment offices the week of July 22.

The government reported last week that the unemployment rate dipped to 4.7 percent in August, after having risen to a five-month high of 4.8 percent in July. Job creation picked up in August but still remained below the sizable gains recorded earlier in the year when the economy was growing more strongly.

Economic growth slowed to an annual rate of just 2.9 percent in the spring as the nation has struggled with soaring energy prices, a cooling housing market and rising interest rates.

The Federal Reserve reported further signs of a slowdown Wednesday, noting that five of its 12 regions experienced slower growth in late July and August.

After raising interest rates for 17 consecutive times over two years, the longest unbroken stretch of rate hikes in Fed history, the central bank passed up the chance for an 18th rate increase at their August meeting.

Many economists believe the Fed will remain on hold at its next meeting on Sept. 20 although some analysts are forecasting one or two more rate hikes later this year because of their belief that inflation will remain above the Fed’s comfort zone.

The four-week moving average for jobless claims edged down slightly last week to 315,250, compared to 318,250 for the previous week.

For the week ending Aug. 26, total claims rose by 1,000. There were three states with an increase in jobless claims of 1,000 or more. The biggest increase was New York with a gain of 4,488, reflecting increased layoffs in transportation and service industries. Kentucky had an increase of 1,847, in jobless claims, reflecting increased layoffs in manufacturing, followed by North Carolina, with a rise of 1,195.

Three states had decreases of 1,000 or more. Ohio had the biggest drop, a decline of 1,845, followed by Virginia, which was down 1,801 and Michigan, were jobless claims fell by 1,381.

The state data lags behind the national data by one week.

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

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