updated 3/4/2004 10:31:03 AM ET 2004-03-04T15:31:03

The number of people filing new applications for unemployment benefits dropped last week, a sign that companies may be feeling better about the economic recovery’s durability and less inclined to lay off workers.

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The Labor Department reported Thursday that for the work week ending Feb. 28 new filings for jobless benefits declined by a seasonally adjusted 7,000 to 345,000, the lowest level in two weeks. The decline was a bit steeper than the decrease of 5,000 that some analysts were forecasting.

Another report from the department said the productivity of American workers grew at a modest 2.6 percent annual rate in the final three months of 2003, according to revised figures. The new figure, which matched economists’ expectations, was slightly slower than the 2.7 percent pace first estimated a month ago.

Productivity measures the amount a worker produces for each hour on the job. For all of 2003, productivity grew by a solid 4.4 percent, following a 5 percent increase for 2002.

Although the fourth-quarter’s performance marked a slowdown from a sizable 9.5 percent growth rate in the previous quarter, it still represented a respectable pace that bodes well for the economic recovery.

In other economic news, many big retailers reported February sales above expectations, particularly at clothing stores including Limited Brands, Talbots and J.C. Penney Co. Inc. The strong results followed a robust January performance and signaled to analysts that consumers continue to be feel good about spending.

The Commerce Department reported the orders to U.S. factories dropped by 0.5 percent in January, mostly reflecting weak demand for transportation equipment, especially airplanes. Excluding orders for transportation equipment, however, factory orders rose by a firm 1.4 percent.

In the layoffs report, the four-week moving average of claims, which smooths out weekly fluctuations, dipped last week to 352,250, a decrease of 3,000 from the previous week.

But even as companies have reduced the speed at which they lay off workers — they haven’t been in a rush to hire people back.

A Federal Reserve survey of business conditions around the country in January and February, released Wednesday, said employment was “growing slowly” in most Fed regions.

Looking ahead, Federal Reserve Chairman Alan Greenspan is optimistic that job growth, which has been poking along, will speed up.

“We could get a pop in employment at any time,” Greenspan said last week.

Slow job growth has been a sore spot for President Bush and is an election-year issue that Democrats have seized upon as evidence of what they believe to be Bush’s poor handling of the economy.

The economy has lost 2.2 million workers since Bush took office in January 2001 as the economy fell into a recession, struggled to get back on its feet, and then staged a material rebound in the second half of last year.

Economists believe that productivity gains were a factor in the job losses. During a period of economic uncertainty, those productivity gains allowed companies to produce more with fewer people. In economic good times, productivity gains usually don’t come at the expense of workers.

But Greenspan has said he is hopeful companies may soon need to step up hiring to meet customer demand because they will be running out of ways to squeeze ever-more efficiencies from existing workers.

In an encouraging sign on that front, companies in the fourth quarter boosted workers’ hours at a 1.5 percent rate, the largest increase since the first quarter of 2000. Companies increased output in the fourth quarter at a 4.1 percent rate.

Analysts believe the nation’s payrolls grew by a net 135,000 jobs in February, which would be an improvement from the 112,000 jobs added in January but would still mark a fairly lackluster pace. The employment report for February will be released Friday. Economists want to see the economy generate around 200,000 or 300,000 net jobs a month on a consistent basis before they declare a recovery in the fragile labor market.

Productivity gains, meanwhile, are important to the economy’s long-term vitality. They allow the economy to grow faster without triggering inflation. Companies can pay workers more without raising prices, which would eat up those wage gains. Productivity also can bolster a company’s profitability. As profits improve, companies may be more willing to ramp up capital investment and hiring.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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