The number of Americans claiming new jobless benefits fell to a four-month low last week, a sliver of hope for an economy battered for days by a credit rating downgrade and falling share prices.
The jobless claims data released by the Labor Department has eased concerns that the economy was heading back into recession as feared by investors, and buoyed US stocks.
Initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 395,000, the Labor Department said, the lowest level since early April. Economists had expected a reading of 400,000.
"We are not necessarily on the verge of another dip in economic activity," said Millan Mulraine, a senior macro strategist at TD Securities in New York.
"The level of claims at this point is more consistent with at least no deterioration in labor market conditions and at best an economy that is adding jobs at about 200,000 (a month)."
But the optimism generated by the claims report was dampened somewhat by a jump in the trade deficit to $53.1bn (£32.7bn) in June, the largest since October 2008, from $50.8bn in May.
As a result of the wider trade shortfall economists estimated the government could lower the second-quarter's already weak annual growth pace of 1.3 per cent to 0.9 per cent.
The government will release its second estimate for second-quarter gross domestic product on Aug. 26. The economy grew at a 0.4 per cent rate in the first quarter.
Hiring accelerated in July after abruptly slowing in the past two months.
However, there are worries that a sharp sell-off in stocks and the nasty fight between Democrats and Republicans over raising the government's debt ceiling could dampen employers' enthusiasm to hire new workers.
City A.M. Reporter