Continuing claims, meanwhile, unexpectedly jumped to a record-high. While layoffs are slowing, unemployed workers are having a difficult time finding new jobs. The unemployment rate rose to 9.5 percent last month and is expected to top 10 percent by the end of this year.
New claims for unemployment insurance plummeted by 52,000 to 565,000, the Labor Department said Thursday. That's significantly below analysts' expectations of 605,000, according to Thomson Reuters. The last time new claims were below 600,000 was week of Jan. 24.
The drop resulted partly from technical factors, a department analyst said. Auto layoffs that normally take place in early July, as factories are retooled to build the next year's models, occurred in the spring instead as General Motors Corp. and Chrysler LLC implemented sweeping restructuring plans.
The department's seasonal adjustment process expected a large increase in claims from auto workers and other manufacturing workers, the analyst said. Since that didn't occur, seasonally-adjusted claims fell.
The non-seasonally adjusted figure increased by about 17,000 to 577,506 initial claims.
Still, continuing claims jumped 159,000 to 6.88 million, the highest on records dating from 1967. Analysts had expected 6.71 million continuing claims.
Continuing claims had fallen in two of the previous three weeks. The data lag initial claims by a week.
Economists are closely watching the level of first-time claims for signs the economy will recover in the second half of this year, as many predict. But the change in the timing of auto layoffs will likely muddy the picture next week as well, the Labor Department analyst said.
The four-week average of initial claims, which smooths out fluctuations, fell to 606,000, down more than 50,000 from its peak in early April.
Still, claims remain elevated: they were at 367,000 a year ago.
Consumers and businesses have cut back on spending in response to the bursting of the housing bubble and the financial crisis, sending the economy into the longest recession since World War II.
The Labor Department said last week that employers cut 467,000 jobs in June and the unemployment rate rose to 9.5 percent, the highest in 25 years.
The payroll cuts last month were greater than analysts expected, renewing concern that jobs will remain scarce even if the economy does eke out growth later this year.
Some employers are still shedding jobs. Gannett Co. Inc., which publishes USA Today and 85 other daily newspapers, said last week that it will eliminate about 1,400 jobs, or 3 percent of its work force.
Among the states, New Jersey reported the largest increase in initial claims, with 7,876, which it attributed to seasonal layoffs related to school closings and manufacturing job cuts. The next largest increases were reported by Massachusetts, Kansas, Kentucky and New York. The state data lags initial claims by one week.
Florida reported the largest decrease, with 12,493, which it attributed to fewer layoffs in the construction, manufacturing and agriculture industries. Illinois, Pennsylvania, California and Tennessee reported the next largest drops.