The number of Americans filing for new jobless benefits dropped to a near four-year low last week, pointing to some building up of momentum in the US labour market and the economy.
But the upbeat economic outlook was dampened by other data showing a drop in new residential construction in December after hefty gains in November.
Initial claims for state unemployment benefits plunged 50,000 to a seasonally adjusted 352,000, the lowest level since April 2008, the Labor Department said.
That was the largest drop since September 2005 and took claims close to the 350,000 mark that economists say would signal strong job growth.
The four-week moving average of claims, considered to be a better measure of labour market trends, dropped 3,500 to 379,000 last week. Analysts had expected initial claims to fall only to 385,000.
The claims data builds on a series of recent strong economic signals and could further temper expectations among some economists that the Federal Reserve could launch a fresh round of bond buying to spur the recovery. The Fed meets next week and no policy action is expected.
But with continued signs of stress in the housing market, the Fed will stay very much in the picture.
Housing starts fell 4.1% to a seasonally adjusted annual rate of 657,000 units in December, the Commerce Department said in a separate report. Economists had expected housing starts to fall to a 680,000-unit rate. Permits for future home construction slipped 0.1% to an annual rate of 679,000 units last month.
In another report, the Labor Department said its Consumer Price Index was unchanged in December for a second straight month as petrol fell and food rose moderately.
Economists had expected prices to edge up 0.1%. Core CPI - excluding food and energy - inched up 0.1% after rising up 0.2% in November. That was in line with economists' expectations.
Although growth gained pace in the fourth-quarter, the recovery is expected to lose a step in the first half of this year mostly due to the debt crisis in Europe, which is already impacting on exports.
The Federal Reserve, which has cut overnight interest rates to near zero and bought $2.3 trillion in bonds, has pledged to keep borrowing costs exceptionally low until at least mid-2013.
But with unemployment remaining high, the housing market weak and inflation generally muted, some economists believe the US central bank will launch a third round of asset purchases this year.
Last month, overall inflation was held back by petrol prices, which fell 2% - declining for a third month in a row. Food prices rose a modest 0.2% after nudging up 0.1% in November. Overall consumer prices rose 3% year-on-year after increasing 3.4% in November. That was in line with economists' expectations.
Core consumer prices were last month dampened by new motor vehicle costs, which fell 0.2% - the third month of declines in a row. Prices for used cars and trucks dropped 0.9%, falling a fourth month in a row. Apparel prices slipped 0.1%, indicating discounting by retailers to attract holiday shoppers.
Apparel prices rose 0.6% in November. But housing costs held up, with owners' equivalent rent rising 0.2% last month, reflecting the rising demand for rental apartments as the weak housing market pushes Americans away from home ownership. This category rose 0.1% in November.
