updated 6/23/2005 8:52:37 AM ET 2005-06-23T12:52:37

The number of Americans filing new applications for unemployment benefits fell sharply last week, signaling that job growth should remain strong in the months ahead.

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The Labor Department reported that new claims for unemployment benefits fell by 20,000 last week to a new total of 314,000.

The improvement in claims was far better than the 3,000 drop that analysts had been expecting and kept the claims level well below 350,000, providing evidence that the labor market remains strong and should support healthy job gains in the months ahead.

The decline followed a small increase of 1,000 claims the previous week and was the biggest one-week drop since a decline of 33,000 the week of April 16. It was the lowest level for claims in nine weeks.

The improvement helped lower the four-week moving average of jobless claims to 333,000, down from 335,500 the previous week.

The unemployment rate in May dipped to 5.1 percent, the lowest level in nearly four years, even though American businesses created only 78,000 payroll jobs last month. That was the smallest increase in 21 months and down sharply from a surge of 274,000 jobs in April.

Federal Reserve Chairman Alan Greenspan told Congress last week that he believed the economy was on a “reasonably firm footing” with inflation remaining under control and economic growth expected to remain strong in coming months.

Those comments were seen as further evidence that the Federal Reserve, which has raised interest rates eight times over the past year, will boost rates again when policy-makers meet next week and keep raising rates at a gradual pace through the summer and perhaps well into the fall.

The biggest threat to optimistic economic assumptions would be a renewed and sustained surge in oil prices which would jolt consumer and business confidence. Oil prices surged into record territory earlier this week on fears that production will not be sufficient to meet strong global demand in the months ahead.

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