New figures show that the number of Americans filing new claims for jobless benefits dropped to the lowest level since May 2008 last week.
Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 366,000, the Labor Department said. Economists had expected an increase.
In a separate report, the New York Federal Reserve said its "Empire State" general business conditions index rose to 9.53 - the highest since May - from 0.61 in December.
The two sets of figures are the latest to provide more evidence of a pick-up in US economic activity.
The unexpected drop in jobless claims last week pushed them closer to the 350,000 mark that analysts say signals labour market strength.
The Federal Reserve on Tuesday acknowledged the improvement in the jobs market, but said unemployment remained high. The jobless rate dropped to a two-and-a-half-year low of 8.6% in November.
Separate figures from the Federal Reserve showed that US industrial production fell in November for the first time in seven months as factories made fewer cars, electronics and appliances.
The Fed said output at the nation's factories, utilities and mines dropped 0.2% last month. Factory output, the biggest component of industrial production, decreased 0.4%, mainly because of steep decline in the production of motor vehicles and parts.
The decline in industrial production was the first since April, though manufacturing figures can be volatile from month to month.
Manufacturing was an early bright spot in the US economic recovery, helping the country emerge from the deep recession that ended officially in June 2009.
US factory gate prices creep up
Official figures show that US producer prices rose by slightly more than expected in November.
The Labor Department said its seasonally adjusted index for prices received by farms, factories and refineries increased 0.3%, following October's 0.3% fall.
Excluding volatile food and energy, producer prices edged up 0.1% last month after being flat in October. That was below economists' expectations for a 0.3%.
But in the 12 months to November, core producer prices rose 2.9%, the largest increase since June 2009.
The report showed broad gains in producer prices but a weak labour market will make it difficult for companies to pass on the increased costs to consumers.
The Federal Reserve has long maintained that inflation will settle at levels at or below those consistent with its price stability mandate.
