updated 10/5/2006 9:43:21 PM ET 2006-10-06T01:43:21

The number of newly laid off workers filing claims for unemployment benefits dropped last week to the lowest level in 10 weeks.

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The Labor Department reported Thursday that 302,000 persons filed claims last week, the smallest number to show up at unemployment offices since the week ending July 22.

The level was down by 17,000 from the previous week and marked the second consecutive week that claims applications have fallen, providing evidence that the slowdown the economy has been going through since the spring has not triggered a big increase in layoffs.

But analysts cautioned against reading too much into the big drop in claims. Ian Shepherdson, chief U.S. economist at High Frequency Economics, said it should be “considered a curiosity rather than evidence of a change in the trend.” He predicted that claims would begin to rise slowly in the final months of this year, reflecting weaker economic growth.

Meanwhile, many of the nation’s major retailers reported Thursday that sales came in better than expected in September as customers, encouraged by falling gasoline prices, went on a shopping spree.

Among the retailers reporting strong gains were Nordstrom Inc. and Limited Brands Inc.

The increases ahead of the holiday shopping season should ease fears of a big drop-off in sales stemming from the slump in the once high-flying housing market.

On Wall Street, the Dow Jones industrial average set a third straight closing record, rising by 16.08 points to end the day at 11,866.69 points.

Even with the hopes that falling energy prices and a rebound in consumer spending will cushion the economy’s fall, the Bush administration said Thursday it believed growth slowed in the just-completed July-September quarter.

Alan Hubbard, director of the president’s National Economic Council, told reporters the drop in housing activity would translate into growth of between 1 percent and the “low twos” in the third quarter.

Federal Reserve Chairman Ben Bernanke on Wednesday labeled the slowdown in housing as a “substantial correction” and estimated that it would trim economic growth by a full percentage point in the second half of this year.

The economy grew by just 2.6 percent in the second quarter, less than half the pace of the first three months of the year, as it was battered by soaring gasoline prices, rising interest rates and a cooling housing market.

The 302,000 applications for jobless benefits last week was the smallest number since 299,000 people had applied for benefits the week of July 22. Claims have been fairly steady even with the economy slowing.

Analysts believe that employers are holding on to the workers they have but have trimmed their plans for hiring new workers.

The government will report Friday on hiring activity during September. Many economists are expecting a modest gain of around 120,000 employees added to business payrolls. But they believe the increase in hiring will be enough to keep the unemployment rate steady at 4.7 percent.

The rise in jobless applications last week followed an increase of 319,999 claims in the week ending Sept. 23.

During that week, 36 states and territories reported a drop in claims applications while 17 states had an increase.

Two states reported increases in jobless claims of more than 1,000. In Michigan, which saw layoffs caused by the troubles in the auto industry, jobless claims rose by 15,513. Missouri had an increase of 1,177 claims, which officials attributed to layoffs in transportation and furniture factories.

A total of eight states reported declines of 1,000 or more, with many citing fewer layoffs in manufacturing industries, including autos, for the improvement.

Kentucky had the biggest decrease in jobless claims, a drop of 5,149, followed by North Carolina, with a decline of 3,499, and Virginia, where claims fell by 2,502.

The state information is reported with a one week lag from the national data.

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