msnbc.com staff and news service reports
updated 8/4/2011 11:26:57 AM ET 2011-08-04T15:26:57

Applications for unemployment benefits dropped slightly in the latest week, but not enough to lift the gloom about the health of the recovery.

Initial claims for state unemployment benefits nudged down 1,000 to a seasonally adjusted 400,000, the Labor Department said on Thursday.

Economists polled by Reuters had forecast claims rising to 405,000. The prior week's figure was revised up to 401,000 from the previously reported 398,000.

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The labor market is being anxiously watched for signs whether the economy will regain speed after growth stalled in the first half of this year. Gross domestic product grew at an annual pace of 1.3 percent in the second quarter after a negligible 0.4 percent rate in the January-March period.

Story: Why companies aren’t hiring more workers

Data so far show the anemic growth pace persisted early in the third quarter, with manufacturing activity hitting a two-year low in July and the services sector expanding at its slowest pace in nearly 1-1/2 years.

Still, jobless claims are hovering around the important 400,000 level. Economists say they need to drop below that for a sustained period to make any meaningful dent in unemployment, which is above 9 percent.

"A pretty disappointing report. If we look at last week, that was the first time we dipped below 400,000 in 15 weeks, and that was revised away. Still not any good place in terms of expectations for further improvement in the labor market," Lindsey Piegza, economist at FTN Financial, told Reuters. "This sets a bad tone for tomorrow's payrolls report."

The claims data falls outside the survey period for the government's closely monitored employment report for July, which is scheduled for release on Friday.

Nonfarm payrolls likely increased 85,000 last month, according to a Reuters survey, after rising only 18,000 in June. The unemployment rate is expected to hold steady at 9.2 percent.

The four-week moving average of claims, considered a better measure of labor market trends, fell 6,750 to 407,750 -- the lowest since mid-April.

The number of people still receiving benefits under regular state programs after an initial week of aid rose 10,000 to 3.73 million in the week ended July 23.

Reuters contributed to this report.

Video: Weekly jobless claims drop slightly

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