WASHINGTON – The number of people seeking unemployment benefits fell sharply last week, an encouraging sign that layoffs are easing.
The Labor Department says that weekly applications dropped 37,000 to a seasonally adjusted 391,000, the lowest level since April 2. It's the first time applications have fallen below 400,000 since Aug. 6.
Applications typically need to fall below 375,000 to signal substantial job growth. They haven't been that low since February.
A Labor Department spokesman said some of the drop was due to technical difficulties related to seasonally adjusting the figures. The spokesman said some states also reported higher applications in previous weeks due to Hurricane Irene.
The four-week average, a less volatile measure, fell to 417,000, the first drop in six weeks.
Despite the signs of improvement, the job market remains sluggish.
Many businesses have pulled back on hiring in the past few months as the economy has weakened. Consumers are reluctant to spend, with unemployment high, wages stagnant, and gas prices at about $3.50 a gallon.
Consumer confidence plunged in August to recessionary levels, after lawmakers battled over raising the government's borrowing limit and Standard & Poor's cut its rating on long-term U.S. debt. That sent the stock market sharply lower, which hurts consumers' ability to spend.
Retail sales were flat in August, a sign the turmoil caused consumers to pull back.
Businesses also held off on hiring. Employers added no net jobs in August, the worst showing in almost a year. The unemployment rate was stuck at 9.1 percent for the second straight month.
Investors also worried last week that Europe won't be able to prevent Greece from defaulting and worsening the region's debt crisis. That sent the U.S. stock market down 6.4 percent, its biggest weekly loss since October 2008, in the midst of the financial crisis.
If European banks hoard cash to make up for their losses and stop lending to their U.S. counterparts, that could restrict credit in the United States and slow the economy. And a financial crisis in Europe would reduce U.S. companies' exports and sales to the region.
The slow growth and turmoil have raised fears that the U.S. economy could enter another recession. Some economists put the odds as high as 40 percent.
The economy barely grew in the first six months of this year. Still, economists expect growth will improve a bit in the second half, to 1.5 percent to 2 percent. But that's not enough to spur much hiring and won't feel much better than a recession to most Americans.
The latest sign of a weak job market came Wednesday, when the Conference Board said its index of online help-wanted ads fell by 1.1 percent to 3.95 million. Openings have fallen by about 500,000 in the past six months, the group said, after jumping by more than 750,000 in the first three months of the year.
Instead of hiring, companies are spending on new equipment. A key measure of business investment plans rose 1.1 percent in August, the Commerce Department said Wednesday. Companies ordered more machinery, computers and communications equipment.
That's a good sign, because it shows that businesses are sticking with their investment plans, despite recent signs of economic weakness.
Last week, the Federal Reserve took its latest step to boost the economy. It said it will swap $400 billion of short-term Treasury securities into longer-term notes and bonds. The central bank said it will also reinvest the proceeds from its maturing mortgage-backed securities into new mortgage-backed bonds. Both steps should reduce mortgage rates.