Fewer Americans filed new claims for unemployment benefits last week. But even with the decline, claims were still at a high level suggesting that businesses were keeping work forces lean as the country headed into a war with Iraq.

The Labor Department reported Thursday that initial applications for unemployment insurance dipped by a seasonally adjusted 4,000 to 421,000 for the work week ending March 15.

Economists say that claims above the 400,000 mark generally point to a job market that is extremely weak. Claims have been above 400,000 for five straight weeks.

Even with last week's drop, the level of claims was still higher than analysts were forecasting. They were predicting claims would fall to 415,000.

The more stable, four-week moving average of initial claims, which smooths out weekly fluctuations, meanwhile, rose to 424,750 last week, the highest level in 10 months. That rise in layoffs underscored the struggles that both companies and workers face amid these uncertain economic times.

Businesses worried about the war with Iraq, weak profits and a generally uncertain business outlook have been keeping their work forces lean and have been reluctant to make big commitments to capital spending. These forces are restraining the economy's recovery.

Manufacturing has been the weakest link in the economy's ability to get back to full throttle. Faced with lackluster demand for their products, manufacturers have shed hundreds of thousands of workers and pared back production.

Against that backdrop, economists believe the nation's unemployment rate could creep higher in coming months.

The jobless rate rose to 5.8 percent in February as the economy lost a whopping 308,000 jobs in that month alone. A sour job market could turn consumers, the main source keeping the economy going, even more cautious, economists say.

Federal Reserve Chairman Alan Greenspan and his colleagues on Tuesday decided to hold a key interest rate steady at a 41-year low of 1.25 percent. Fed policy-makers said they would keep a close eye on economic developments surrounding the war.

Economists say if the war does not go well, oil prices skyrocket, profit-challenged companies slash jobs and consumers get tightfisted, then the Fed might opt to cut interest rates.

Conversely, if the United States wins quickly in Iraq, then interest rates could stay at current low levels for some time as the economy tries to get back on surer footing, economists say.

Greenspan and many private economists express confidence that if the Iraq crisis is favorably resolved, the economy will get back on track.

President Bush has offered a plan made up mostly of tax cuts to help energize the economy, which has been struggling since the 2001 recession and the Sept. 11, 2001, terrorist attacks.