msnbc.com news services
updated 1/3/2008 9:06:25 AM ET 2008-01-03T14:06:25

The number of newly laid off workers filing for unemployment benefits fell sharply last week although much of the improvement reflected unusual factors related to the Christmas holiday.

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The Labor Department said the number of persons applying for jobless benefits totaled 336,000 last week, down by 21,000 from the previous week when jobless claims had hit the highest level in more than two years.

Last week’s decline in benefit applications was more than double what had been expected, but analysts cautioned that it is difficult to gauge the strength of the labor market from the claims figures during holiday-shortened work weeks.

Several states reported large declines in claims because their unemployment offices were closed for two days last week — Christmas Eve and Christmas — allowing less time for laid off workers to file for benefits.

Labor Department analysts said that states reporting increases in claims reflected normal patterns of temporary layoffs that occur in various industries at this time every year.

Another report released Thursday showed private employers added 40,000 jobs in December.

ADP Employer Services, a private employment service whose employment report was jointly developed with Macroeconomic Advisers LLC, also said it revised downward the number of jobs created in November to 173,000 from 189,000.

Economists surveyed by Reuters had expected the ADP report to show 50,000 new private-sector jobs in December.

Thursday’s report said the bulk of the private sector jobs gains in December were in the services sector, but the report showed that employment levels are still falling in construction and financial services, two sectors of the economy hit hardest by the U.S. housing slump and credit crisis.

Markets watch the ADP report closely for clues about the government’s more comprehensive nonfarm payrolls report, which also includes public sector employment.

According to the latest Reuters poll, the Labor Department is expected on Friday to report that the unemployment rate in December crept up to 4.8 percent, from 4.7 percent in November, with businesses creating a modest 70,000 jobs, down from 94,000 payroll jobs created in November.

The labor market is being closely watched currently to see whether layoffs rise in coming months as the economy slows from the battering it is taking from a slumping housing market and severe credit crunch.

The total of 336,000 weekly jobless claims was the lowest weekly figure in three weeks. It followed a revised claims total of 357,000 last week, which had been the highest weekly total since October 2005 when layoffs had surged in the aftermath of a series of devastating hurricanes along the Gulf Coast.

For the week ending Dec. 22, 38 states and territories had reported an increase in claims while 15 reported decreases.

The state with the biggest claims increase was Michigan, up 12,084, because of higher layoffs in the auto industry, followed by California and Indiana.

The states with the biggest declines were Illinois, New York and Colorado.

The Associated Press and Reuters contributed to this report.

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