Meanwhile, a private research group's closely watched indicator of future economic activity edged up in April, providing more evidence of a sustained recovery.
The Labor Department reported Thursday that new applications for unemployment insurance climbed by a seasonally adjusted 12,000 to 345,000 for the week ending May 15. Claims below 400,000 suggest the job market is improving.
Economists were forecasting claims that were filed last week to fall to about 326,000.
In an encouraging note, the more stable, four-week moving average of claims, which smoothes out weekly fluctuations, dropped last week to 333,500. That was the lowest level since Nov. 18, 2000.
Even with last week's increase, the one-week layoff picture looks better than compared with the same time last year, when claims were at 424,000. Claims reached a high last year of 444,000 in the middle of April.
"There's really been an improvement," said Frank Mastromauro, equity strategist with Chase Personal Financial Services. "We do think job growth is definitely going to be supportive of overall economic growth," he said.
The unemployment rate fell to 5.6 percent in April as businesses bolstered payrolls and added 288,000 jobs. Mastromauro said he believes payrolls will grow by a solid 150,000 in May. The government releases the employment report for May on June 4.
Despite the optimistic showing on employment, the job market needs to get even stronger. The economy has lost a net 1.5 million jobs since President Bush took office in January 2001. Private economists said it will take time to recoup those losses.
John Kerry, the presumptive Democratic presidential nominee, has pointed to the losses as evidence that Mr. Bush's economic policies are not working. Mr. Bush says a strengthening economy eventually will put more people to work.
The economy grew at a 4.2 percent pace in the first three months of this year. Economists believe economic growth in the April-June period will be between 4.5 percent to 5 percent.
The New York Times reports that while job seekers may want the economy to continue heating up, stock markets are waiting for it to cool down, because growth could trigger inflation and higher interest rates, both of which cut into profits.
With the job market's rebound, the Federal Reserve is expected to begin to raise a key short-term interest rate to keep inflation down. The rate has held at 1 percent since last June, the lowest in 46 years.
Some economists believe the Fed will order a rate increase next month; others predict a move in August or later.
The Conference Board said Thursday its Composite Index of Leading Economic Indicators rose 0.1 percent in April, after a revised gain of 0.8 percent the previous month. The latest increase was slightly lower than the 0.2 percent rise forecast by analysts.
The April reading points to "continued strong economic and job growth through the third quarter," said Ken Goldstein, an economist for the Conference Board.
"While there are growing concerns about rising gasoline prices this spring, as well as worries about what happens after all the tax refunds have been spent, the indicators are not signaling any softening in America's basic economic fundamentals," he said.
The index is tracked as a measure of the economy's direction during the coming six months. Of the 10 components making up the index, four increased last month, including the real money supply, building permits and stock prices.
The Conference Board also said its gauge of current economic activity continued to strengthen in April, rising 0.3 percent.