Jobless Claims Fall Unexpectedly

The number of Americans applying for unemployment benefits dropped by a larger-than-expected amount last week, indicating the nation's labor market remains strong.

The Labor Department reported that 278,000 laid-off workers applied for jobless benefits last week, a decline of 20,000 from the previous week.

It was the biggest drop in five weeks, since a decrease of 36,000 claims the week ending Jan. 14. Weekly jobless applications have been below 300,000 for six straight weeks, a range that reflects healthy job conditions.

The unemployment rate fell in January to 4.7 percent, a 4 1/2-year low, as businesses added 193,000 new jobs last month, up from a gain of 140,000 in December.

Analysts believe the level of layoffs this year is consistent with strong job gains in coming months of around 200,000 per month.

The four-week moving average for jobless claims dipped slightly to 281,750, the lowest level since 276,750 the week ending Feb. 4. That was the lowest level in nearly six years.

President Bush, who saw jobs evaporate during the first 2 1/2 years of his presidency as the country struggled with a recession, the terrorist attacks and corporate scandals, gives credit for the rebound since mid-2003 to his tax cuts. He is urging Congress to make permanent the tax cuts, which are all due to expire after 2010.

The Federal Reserve is keeping a close watch to see if wage pressures stemming from relatively tight labor markets start to push overall inflation higher. New Fed Chairman Ben Bernanke also told Congress last week that the huge surge in energy prices over the past two years is also being monitored for signs those increases are spilling over into other areas.

So far, those pressures have remained dormant. The government reported Wednesday that consumer prices jumped by 0.7 percent in January because of a spike in gasoline and electricity costs. But outside of food and energy, core inflation was up a modest 0.2 percent last month and has risen by just 2.1 percent over the past 12 months.

The moderate behavior of core inflation has allowed the Fed to move interest rates higher at a gradual pace of 14 quarter-point moves beginning in June 2004. Many analysts believe the Fed will boost rates again at the Fed's March 28, which will be Bernanke's first as chairman.

Some economists believe the Fed will then move to the sidelines for the rest of the year but other economists believe there will be one more rate hike at the May meeting.