Meanwhile, retailers reported Thursday that sales rose in February by the largest amount since November 2007, a month before the recession began. Factory orders also rose in January, the Commerce Department said.
The reports provide fresh evidence that the economy is steadily growing. But it's not clear when that improvement will translate into new hiring.
The Labor Department said Thursday that initial claims for unemployment insurance fell by 29,000 to a seasonally adjusted 469,000. That nearly matches Wall Street analysts' estimates of 470,000.
Still, last week's drop only partly reverses a sharp rise in claims in the previous two weeks.
The four-week average of claims, which smooths out volatility, fell by 3,500 to 470,750. Despite the drop, the average has risen by about 20,000 since the beginning of the year.
"We're far from a perfect world but it's not quite the tremendous difficulty the job market was in about a year ago," Stuart Hoffman, chief economist at PNC Financial, told CBS Radio News.
Initial claims are considered a gauge of the pace of layoffs and an indication of companies' willingness to hire new workers. But they have been volatile in recent weeks as last month's severe snowstorms in the Northeast have distorted the data.
Claims rose sharply two weeks ago partly because several states processed a backlog of claims that had built up from previous weeks when government offices closed due to bad weather. No states reported backlogs this week, a Labor Department analyst said.
"It might be another couple of weeks until we get a clear picture of where claims are settling in," said Conrad DeQuadros, an economist at RDQ Economics.
In another sign that companies are raising output without adding many jobs, the department said in a separate report that productivity rose by 6.9 percent in the fourth quarter, higher than analysts' expectations of a 6.3 percent rise.
While higher productivity, or output per hour worked, raises living standards in the long run, it also enables companies to get by with fewer workers.
Separately, the number of buyers who agreed to purchase a home fell sharply in January, a sign that demand for housing is sinking this winter as stormy weather slammed Eastern states.
A seasonally adjusted index of sales agreements fell 7.6 percent from December to a January reading of 90.4, the National Association of Realtors said Thursday.
The rise in retail sales reflected gains among a broad array of merchants, from luxury retailer Nordstrom to more mainstream Macy's Inc. Limited Brands Inc. and discounter Target Corp. also reported rising sales on Thursday that beat Wall Street analysts' estimates. The gains came in the face of a decline in consumer confidence.
The Federal Reserve had said in a report earlier this week that the recovery is plodding ahead but not at a strong enough pace to persuade companies to ramp up hiring.
The jobs market "remained soft throughout the nation," the Fed said Wednesday in a report known as the Beige Book.
The Labor Department will issue the February employment report Friday, and economists expect the unemployment rate rose to 9.8 percent from 9.7 percent as employers cut 50,000 jobs. The snowstorms likely inflated the job losses by up to 100,000, economists say.
After growing at a 5.9 percent rate at the end of 2009, many economists believe the recovery lost steam in the first three months of this year. They predict the economy will grow at a pace of around 3 percent from January to March.
High unemployment will likely slow the recovery as it reduces consumers' ability to spend. The economy has lost 8.4 million jobs since the recession began. The Fed expects unemployment to average 9.5 percent to 9.7 percent this year.
The number of people continuing to claim jobless benefits, meanwhile, fell more than expected to 4.5 million, according to Thursday's report.
But the so-called continuing claims do not include millions of people who have used up the regular 26 weeks of benefits typically provided by states, and are receiving extended benefits for up to 73 additional weeks, paid for by the federal government.
Nearly 5.9 million Americans were receiving extended benefits in the week ended Feb. 13, the latest data available, up from about 5.7 million the previous week. The extended benefit data isn't seasonally adjusted and is volatile from week to week.
The Senate on Tuesday approved legislation to continue those extended benefits through the month of March, after Sen. Jim Bunning, a Kentucky Republican, dropped his objection. Bunning had argued the cost of the benefits should be paid for rather than added to the deficit.
The Senate is still working on legislation that would continue the extra benefits through the end of the year.