updated 3/6/2008 10:41:29 AM ET 2008-03-06T15:41:29

The number of people signing up for unemployment benefits fell sharply last week, a spot of welcome news that nonetheless failed to change the overall picture of a softer employment climate.

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The Labor Department reported Thursday that new applications filed for unemployment insurance fell by a seasonally adjusted 24,000 to 351,000 for the week ending March 1.

Although the drop left claims lower than the 360,000 showing economists were expecting, the longer-term picture shows a slowing in the jobs market. A year ago, new filings for unemployment benefits stood at 327,000.

The number of people continuing to collect unemployment benefits rose by a sharp 29,000 to 2.83 million for the week ending Feb. 23, the most recent period for which that information is available. That was the highest level since late September 2005.

Many fear that spreading fallout from the housing and credit crises are driving the country closer to a recession, or that it’s in one already.

To help bolster activity, the Federal Reserve has been cutting interest rates since September. It turned much more aggressive in January, and Chairman Ben Bernanke has signaled rates will likely move even lower. Another rate reduction is expected on March 18, the Fed’s next meeting.

All the economy’s problems have sapped momentum from the labor market. For the first time in more than four years, the economy suffered a nationwide loss of jobs in January. Economists expect to find new jobs were created in February, but not enough to prevent the unemployment rate from rising to 5 percent from 4.9 percent. The government releases the February employment report on Friday.

The economy skidded to nearly a halt in the final three months of last year, growing at a pace of just 0.6 percent. Many economists believe growth in the current January-to-March period will be even weaker — around a 0.4 percent pace. Some, however, believe the economy is shrinking now.

A severe housing slump and harder-to-get credit have turned businesses and individuals more cautious in their spending, thus weakening economic growth. Adding to the strains: lofty energy prices. Oil prices have soared to record highs.

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