Fewer Americans sought unemployment benefits last week, indicating companies continue to hire at a modest but steady pace.
The Labor Department said Thursday that weekly applications for unemployment benefits fell 5,000 to a seasonally adjusted 366,000.
The four-week average, a less volatile measure, dropped to 350,500, the lowest in nearly five years. The average is low because of seasonal factors, which reduced applications sharply last month.
Still, economists were encouraged by the decline. Weekly applications are a proxy for layoffs. When layoffs decline, net hiring typically rises.
The drop in the four-week average "is good news and supports the view that the U.S. labor market is gradually improving," said Jennifer Lee, an economist at BMO Capital Markets.
The four-week average of applications has dropped nearly 6 percent in the past three months. At the same time, hiring has picked up: Employers added an average of 200,000 jobs a month from November through January.
In January, employers added 157,000 jobs. And annual revisions included in the Labor Department's January employment report showed the economy created 600,000 more jobs in 2011 and 2012 than previously thought.
Still, the unemployment rate ticked up to 7.9 percent in January from 7.8 percent in December. Economists expect unemployment will decline if hiring continues at last year's monthly pace of 180,000. The rate fell 0.7 percentage points in 2012.
Overall, nearly 5.6 million people received unemployment benefits in the week ended Jan. 19, the latest data available. That's about 325,000 fewer than the previous week.
That's also less than half the number of unemployed, which stood at 12.3 million last month. Many of the unemployed aren't eligible for benefits, while others have used up all the benefits available to them.
More hiring and income are needed to fuel greater economic growth. The economy shrank at an annual rate of 0.1 percent in the October-December quarter. But the decline was mostly caused by deep cuts in defense spending and sluggish growth in company stockpiles — one-time events that analysts say are likely rebounding in the current quarter.
Economists expect growth of around 2 percent this year. Strength in areas like housing and auto sales could partly offset government spending cuts this year.
Home builders are stepping up construction to meet rising demand. That should create more construction jobs. Home prices and sales are also increasing.
The housing recovery is boosting jobs at home-supply stores and retailers. Home Depot said Wednesday that it plans to hire 80,000 temporary employees for the spring selling season. The jobs will be part-time and full-time, the company said.