The concern is that the big improvement will be temporary as the weak economy continues to push unemployment higher.
The Labor Department said Wednesday that the number of people filing first-time claims for jobless benefits fell by 35,000 to 466,000. That was the lowest level for initial claims since the week of Sept. 13, 2008, and was far better than the 500,000 that economists had expected.
The number of workers receiving benefits also fell sharply, dropping 190,000, to 5.42 million, the lowest level for continuing claims since February.
Analysts cautioned against reading too much into the sharp drop in unemployment claims, noting that part of the improvement reflected large seasonal adjustment factors, which smooth out changes that normally occur at certain times of the year. Excluding seasonal adjustments, claims rose. That's normal at this time of year when a large number of construction workers face layoffs because of worsening weather conditions.
The unemployment rate hit a 26-year high of and many economists believe the recovery will remain so sluggish that the jobless rate will keep rising, possibly topping 10.5 percent by the middle of next summer.
Meanwhile, as season employment increases, . The Commerce Department reported Wednesday that spending was up a brisk 0.7 percent as Americans saw rises in income.
But the country's jobless rate looms over any positive economic indications. Federal Reserve policymakers worried at their November meeting that the unemployment rate could remain elevated for several years, according to minutes of the discussions released Tuesday.
New claims last week dropped below 500,000 for the first time since the first week in January. Weekly claims peaked at 674,000 in March and have generally been trending lower since then.
However, many economists believe that claims must drop to around 425,000 to signal actual growth in employment. Economists expect 145,000 payroll job cuts for November, a slight improvement from the net job loss of 190,000 last month.
Recent reports indicate employers are continuing to lay off workers. Struggling Internet company AOL last week said it plans to cut up to 2,500 jobs, more than a third of its work force, once it is spun off from the media conglomerate Time Warner Inc. And Hartford, Conn.-based health insurer Aetna Inc. said it will cut 625 jobs, or nearly 2 percent of its staff, and will make similar job cuts in the first quarter of 2010 due to the lagging economy and the potential impact of health care reform.