The number of Americans lining up to claim first-time unemployment aid edged lower last week, largely in line with expectations, a government report showed on Thursday.

A separate report showed employment costs in the final quarter of 2003 rose by the smallest amount in a year and by slightly less than expected.

"The declining trend of initial state jobless claims reinforces expectations of an eventual substantial upturn by payrolls employment," said John Lonski, chief economist at Moody's Investors Service in New York.

Claims for state unemployment insurance benefits (search) fell 1,000 to 342,000 in the week ended Jan. 24, down from a revised 343,000 the previous week, the Labor Department (search) said.

Analysts were expecting claims of 340,000 after the originally reported 341,000 in the Jan. 17 week.

The closely watched four-week moving average, considered a more reliable gauge of labor market health because it smooths volatility, increased 750 to 346,000.

A Labor Department official said there were no special factors in the report.

Analysts will be keeping a careful eye on the jobless claims numbers ahead of the Labor Department's January report on employment, due out next week.

December's disappointing report showed only 1,000 new jobs were created, even though the weekly jobless claims data had been pointing to an improvement. The weak employment growth was a blow to President George W. Bush as he tries to take credit for a recovering economy in the run up to the November election.


A pickup in the labor market is seen as crucial for a sustained economic recovery.

A separate report from the Labor Department showed U.S. employment costs in the final quarter of 2003 rose by the smallest amount in a year and by slightly less than expected.

The Employment Cost Index (search), a broad gauge of what employers pay in wages, salaries and benefits, climbed 0.7 percent in the last three months of the year, down from a 1.0 percent increase in the previous quarter.

Wall Street analysts had been expecting a 0.9 percent rise in costs.

Climbing healthcare and pension costs helped to push up the index. Benefits costs rose 1.2 percent, outpacing a 0.5 percent gain in workers' wages. It was the smallest rise in benefits costs since the third quarter of 2002, while the increase in wages and salaries was the slightest in a year.

Economists say some employers are taking on temporary workers to try and contain costs until they are convinced the economy is on a sound enough footing to need permanent new workers.

For the year, employment costs rose 3.8 percent, up from a 3.4 percent gain in 2002.