updated 8/4/2005 8:51:58 AM ET 2005-08-04T12:51:58

Fewer people signed up for unemployment benefits last week, an encouraging sign that the nation’s jobs climate is improving.

Major Market Indices

The Labor Department reported Thursday that new applications filed for unemployment insurance dropped by a seasonally adjusted 1,000 to 312,000 for the week ending July 30.

The showing was even better than economists were expecting before the release of the report. They were predicting claims for jobless benefits actually would rise.

The latest labor market barometer suggested that companies are feeling pretty good about the economy and thus may be less inclined to lay off workers and more willing to step up hiring.

The economy grew by an energetic 3.4 percent annual rate in the second quarter. Economists believe it will perform even better in the July-September period.

The more stable, four-week moving average of new jobless claims also declined last week to 316,750, a decrease of 2,250 from the previous week. The 316,750 level of claims was the lowest since late February.

And, the number of people continuing to draw unemployment benefits dropped to 2.6 million for the week ending July 23, the most recent period for which that information is available. A year ago, the number of people continuing to collect benefits stood at 2.9 million.

Thursday’s report is consistent with analysts’ expectations that labor market conditions continued to get better in July.

The nation’s unemployment rate in June dipped to 5 percent, the lowest in nearly four years, as employers added 146,000 jobs to their payrolls during the month.

Economists are looking for stronger job growth for July and are forecasting that around 180,000 net new jobs were created. The jobless rate is expected to hold steady. The government releases the employment report for July on Friday.

With the labor market improving, the Federal Reserve is keeping a close eye on signs of inflation, especially any that could come from the compensation front. So far, wage and benefit costs aren’t ringing any inflation alarm bells at the Fed.

Still, the Fed is widely expected to boost short-term interest rates by another quarter percentage point when its meets on Tuesday. That would represent the 10th increase of that size since the board began to tighten credit on June 2004 to keep inflation in check.

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