The number of laid off workers filing claims for unemployment benefits fell last week by the largest amount in three months.
The Labor Department reported that applications for jobless benefits dipped by 15,000 last week to a total of 338,000. The decline was the largest since the level of claims had dipped by 22,000 in the first week of September.
Analysts cautioned against reading too much into the improvement given the volatility in the numbers around holiday periods. Claims had surged the previous week to the highest level since February.
The four-week average for claims continued rising to 340,250, the highest level for this gauge in two years.
Economists are looking for the labor market to weaken under the impact of a variety of blows to the economy, from a serious downturn in housing to a credit crunch and rising energy prices.
The government will release the November employment report on Friday. It is expected to show that the jobless rate edged up to 4.8 percent, from 4.7 percent in October.
Overall economic growth is expected to slow to a barely discernible 1.5 percent in the current October-December period and weaken even further in the first quarter of 2008.
Analysts said growth rates this low raise the threat of a possible recession. Federal Reserve officials have noted the slowdown in recent comments and Wall Street is hoping the central bank will ride to the rescue with another rate cut when Fed officials meet next Tuesday.
The Fed has already cut rates twice after a severe credit crunch roiled financial markets in August, raising worries that the lack of available loans would further slow an economy already hurt by the worst slump in housing in more than two decades.
The new jobless claims report showed that for the week ending Nov. 24, 25 states and territories saw an increase in claims applications while 28 saw a decline.
The biggest increase in claims occurred in Wisconsin, a rise of 14,126, which was attributed to higher layoffs in construction, services, transportation and manufacturing.
The biggest drop in claims was a decline of 10,435 in California, an improvement which was attributed to fewer layoffs in construction and services.