Fewer workers sought unemployment benefits (search) last week, but the level of new claims remained high, another sign that cautious companies are keeping their work forces lean amid a muddled postwar economic climate.

The Labor Department (search) reported Thursday that new applications for jobless benefits dropped by a seasonally adjusted 28,000 to 425,000 for the work week ending May 3. Even with that decline, claims have been running above the 400,000 mark -- a level associated with a stagnant job market -- for 12 straight weeks.

The more stable, four-week moving average of new claims, which smooths out week to week fluctuations, rose by 3,250 last week to 446,000. That represented the highest level in more than a year.

Federal Reserve Chairman Alan Greenspan (search), in discussing the struggling postwar economy on Capitol Hill last week, specifically referred to the "persistent high level" of new claims for unemployment insurance as a sign that companies are meeting lackluster customer demand with existing or fewer workers.

Private economists are hopeful the economy will grow stronger in the second half of the year, now that the war with Iraq is over.

The nation's jobless rate jumped to 6 percent in April as businesses cut jobs for the third straight month. The economy has lost a half million jobs in the last three months, a decline usually associated with recessions.

The worsening job climate is troubling because it could make consumers -- the main force keeping the economy going -- more cautious, economists say.

The number of workers continuing to draw unemployment benefits rose by 6,000 to 3.67 million for the work week ending April 26, the most recent period for which this information is available. That marked the highest level since Oct. 5, 2002, and suggested that not a lot of hiring is taking place.

Some economists believe the jobless rate will creep higher -- to around 6.3 percent to 6.5 percent later this year -- even if the economy improves a bit in the second half of this year, as analysts hope. Job growth probably won't be strong enough to accommodate all the additional job seekers who would enter the market, attracted by an improved climate.

Greenspan and his colleagues opted Tuesday to hold a key interest rate steady at 1.25 percent, a 41-year low. But policy-makers opened the door to a possible rate reduction at their next meeting on June 24-25.

Already worried about sluggish growth, Fed policy-makers raised a new concern -- that the country could face deflation, a prolonged bout of falling prices. Though they indicated the chance of this was remote, it still represented a possible threat to the economy.