msnbc.com staff and news service reports
updated 10/28/2010 2:41:57 PM ET 2010-10-28T18:41:57

Just five days ahead of the mid-term elections, the labor market gave the Obama administration something to crow about when new claims for unemployment benefits dropped to a three-month low.

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Initial claims for state unemployment aid dropped 21,000 to a seasonally adjusted 434,000, the Labor Department said, meaning fewer people applied for unemployment benefits last week. It was the second drop in a row and a hopeful sign the job market could be improving.

"The week to week claims are a heartening bit of good news," White House spokesman Robert Gibbs told a news briefing.

"The president and the team have the economy moving in the right direction," he said.

Still, economists cautioned that the trend would have to continue for several more weeks before a solid conclusion could be drawn that hiring is picking up. And any progress is likely to come too late to spare Democratic losses in Tuesday's midterm congressional elections, when voter punishment could hand Republicans control of U.S. House of Representatives and curb Democrats' command of the Senate.

Story: For some, jobless benefits trump a job

Thursday's number was the second-lowest for first-time claims this year. The only time it was lower was during the July 10 week, and that week was affected by the Independence Day holiday when state unemployment offices were closed.

Unemployment claims have fluctuated around 450,000 for most of this year, and have fallen below that level seven times. But they have always rebounded in subsequent weeks, and haven't remained below 450,000 for longer than two weeks.

"The drop was unexpected and is a move in the right direction, but it will need to be duplicated in the weeks ahead to indicate that the labor market recovery is gathering momentum," Andrew Gledhill, an economist at Moody's Analytics, said in a note to clients.

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The decline in claims partly reflects a drop in layoffs in the construction sector, said Julia Coronado, an economist at BNP Paribas. That sector had seen elevated layoffs in August. But if fewer layoffs in construction are a reason that claims are down, it means hiring may not be picking up much elsewhere in the economy, Coronado said.

She expects that the economy generated a net gain of 60,000 jobs in October, while the unemployment rate ticked up to 9.7 percent from 9.6 percent last month. The government will release its October jobs report on Nov. 5.

The four-week average of claims, a less volatile measure, dropped by 5,500 to 453,250, the lowest level since the week of July 24.

Applications for unemployment aid fell steadily last year after the recession ended in June 2009, dropping from 600,000 to about 450,000 by January of this year.

Employers haven't done much hiring in recent months with economic growth so weak. The economy grew 1.7 percent in the April-June period, an anemic pace in normal times and even worse in the aftermath of the Great Recession.

Economists expect that the Commerce Department on Friday will report slightly better growth of 2 percent for the July-September period. But that's still sluggish after a deep recession.

The economy needs to grow by at least 5 percent for a full year to bring down the unemployment rate by a percentage point, economists estimate. The jobless rate is currently 9.6 percent, down only slightly from 9.7 percent in January.

Some companies are adding workers. Pharmaceuticals company Novartis AG said Wednesday that it will add 300 new jobs and invest $600 million over the next five years in its research headquarters in Cambridge, Mass. And engine maker Cummins, Inc. said Tuesday that it will expand its headquarters in Columbus, Ind. and add at least 350 jobs by 2012.

The number of people continuing to receive jobless aid also dropped sharply last week, falling by 122,000 to 4.36 million, the department said. But that doesn't include an additional group that is receiving extended benefits under an emergency program approved by Congress during the recession.

The emergency benefit rolls fell by more than 400,000 to about 4.7 million for the week ending Oct. 9, the latest data available. Much of the decline is likely due to people using up all the unemployment aid they are eligible for.

All told, about 8.8 million people received unemployment benefits that week.

The Associated Press and Reuters contributed to this report.

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