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Jobless claims drop to near four-year low

Eric Risberg / AP

Mei Chou, left, a sales director with Mary Kay Cosmetics, interviews Liza Cruz, right, at a Career Fair event in San Francisco, Wednesday, Jan. 18, 2012. The number of people seeking unemployment benefits plummeted last week to the lowest level since April.

New applications for unemployment benefits dropped to near a four-year low in the latest week, government data showed Thursday, providing further evidence that the U.S. job market has gained a bit of momentum.

The Labor Department reported that seasonally adjusted jobless claims fell 50,000 in the week ended Jan. 14, to 352,000 from a revised 402,000 the prior week. Economists polled by Reuters had expected claims to fall only to 385,000.

The 4-week moving average, considered a better gauge of labor market trends because it smooths out wrinkles in the data, was 379,000, a decrease of 3,500 from the previous week's revised average of 382,500.

"We have to see if there are some seasonality issues involved here, but on the surface this number looks to be very positive and is pretty much consistent with other data we've seen recently that suggest improvement in underlying fundamentals in the U.S.," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

Meanwhile the agency also reported that consumer prices were flat for a second straight month in December as gasoline fell and food rose moderately, suggesting scope for further monetary easing should economic growth falter.

Inflation appears to be peaking after rising steeply last year. Prices rose 3 percent in 2011, up from a 1.5 percent pace in 2010 and the most since 2007. But that's down from the 12-month increase of 3.9 percent in September.

Lower inflation gives consumers more spending power, which boosts growth. It also gives the Federal Reserve more leeway to keep interest rates low and take other steps to boost the economy.

A Labor Department spokesman cautioned that volatility in the jobless claims data at this time of year is common. Applications jumped two weeks ago, largely because companies laid off thousands of temporary workers hired for the holidays.

When weekly applications fall consistently below 375,000, it usually signals that hiring is strong enough to push down the unemployment rate.

Hiring improved in the second half of 2011. In December, employers added 200,000 jobs. That marked the sixth straight month in which the economy added at least 100,000 jobs. And the unemployment rate fell to 8.5 percent, a three-year low.

For all of 2011, the economy added 1.6 million jobs. That was up sharply from 940,000 in 2010. Economists say they expect roughly 1.9 million more jobs to be added this year, according to a survey by The Associated Press.

Still, the job market has a long way to go before it fully recovers from the damage of the Great Recession, which wiped out 8.7 million jobs. More than 13 million people remain unemployed. Millions more have given up looking for work and so are no longer counted as unemployed.

The manufacturing sector remains a bright spot. Factory output jumped 0.9 percent in December, the Federal Reserve said this week. That was the sharpest monthly gain in a year. Manufacturing gained 225,000 jobs last year, the most since 1997.

The pickup in hiring reflects stronger economic growth. The economy likely grew at an annual rate of about 3 percent in the final three months of last year, economists estimate.

That would be a sharp improvement over the 1.8 percent annual growth rate in the July-September quarter. Rising consumer spending is thought to be fueling much of the gain in the current quarter.

Even so, economists worry that growth could slow in the first half of 2012. Europe is almost certain to fall into recession because of its financial troubles.

And wages failed to keep pace with inflation last year. Without more jobs and higher pay, consumers might have to cut back on spending. That would weigh down growth next year. Consumer spending accounts for about 70 percent of the economy.

Reuters and The Associated Press contributed to this report.

Don't get so excited about the jobless claims number, says CNBC's Steve Liesman. Weekly jobless claims dropped 50,000 to 352,000 last week. CNBC's Rick Santelli also weighs in.