The U.S. labor situation appeared to improve last week, with the government on Thursday reporting a bigger-than expected falloff in jobless workers applying for state unemployment aid.

The number of workers filing initial jobless claims plunged by 56,000 to a seasonally adjusted 395,000 for the week ended Jan 5 from a revised 451,000 a week earlier, the Labor Department  said.

Much of the decline in first-time claims could be linked to California workers delaying their applications to take advantage of increased benefits under a new state law, which takes effect during the second full week of January, the department said. Still, the latest decline was well beyond the expectations of Wall Street analysts who forecast, on average, that initial claims would slip to 435,000.

Even with last week's drop in claims, the labor market remains weak as the economy struggles out of recession. The four-week moving average, considered a more reliable barometer of employment trends because it irons out weekly fluctuations, inched down to 410,500 claims from 410,750.

The number of workers remaining on jobless benefits dropped by 166,000 to 3.5 million for the week ended Dec. 29, the most recent week for which the data were available.

Debt markets were little moved by the numbers, with Treasury bonds trading softer to unchanged.