New claims for unemployment benefits plunged last week to the lowest level in four months, providing a dose of encouraging news for workers who have been feeling the strain of the uneven economic recovery.

The Labor Department reported Thursday that new applications for unemployment insurance fell by a seasonally adjusted 25,000 to 376,000 for the work week ending Nov. 16. The decline left claims at their lowest level since the week ending July 20.

In the prior week, new claims for jobless benefits rose by 4,000.

The latest snapshot of the labor market was much better than analysts were expecting. They were forecasting a rise in new claims.

The economic recovery has been advancing this year, but in fits and starts, an environment that has made businesses wary about making big commitments in hiring and in capital investment. Fears about a war with Iraq, the turbulent stock market and other economic uncertainities have weighed heavily on companies and has made workers who still have jobs anxious about keeping them.

Wanting to energize the economic recovery, the Federal Reserve (news - web sites) earlier this month cut a key interest rate by a bold half a percentage point to a 41-year low of 1.25 percent. It marked the first rate reduction of this year and the 12th since January 2001.

Even as layoffs slow, economists are not expecting companies to go on a hiring spree. Many economists believe companies, in the face of the weak recovery and economic uncertainties will keep their work forces lean. Rather than hiring additional help, businesses will probably work existing employees longer hours, economists said.

The nation's unemployment rate rose to 5.7 percent in October. Some economists believe the unemployment rate could hover in that range or move up slightly in the coming months.

Thursday's report also showed that the more stable four-week moving average of new jobless claims also declined last week to 395,750, the lowest level since the week ending Aug. 24.

The number of unemployed people who are continuing to collect unemployment benefits dipped to 3.58 million for the work week ending Nov. 9, the most recent period for which the information is available. While the decline was encouraging, the level of people continuing to draw claims was still high enough to suggest that a big wave of hiring isn't on the horizon, economists say.

Still, Thursday's report showing that layoffs are stabilizing may also bode well for consumer spending in the holiday shopping season.

Consumer spending accounts for two-thirds of all economic activity in the United States and has been the main force keeping the economy going all year.

Low mortgage rates, tax cuts, and extra cash coming from a refinancing boom has helped to support consumer spending this year, offsetting some negative factors including the roller-coaster stock market and the uncertain econonomic environment.