The number of Americans seeking unemployment benefits dropped 9,000 last week to a seasonally adjusted 323,000, near the lowest level since June 2008.
The figure shows US employers are laying off fewer and fewer workers, an encouraging sign a day before the government will issue its August jobs report.
Weekly applications are just 1,000 above a five-year low reached last month, the Labor Department said today. The four week average, a less volatile measure, declined 3,000 to 328,500 - the lowest point since October 2007.
Economists forecast that the August jobs report will show employers added 177,000 jobs, up from 162,000 in July. The unemployment rate is expected to remain at 7.4%.
Applications are a proxy for layoffs and they have fallen 5% in the past two months, raising hopes that hiring could pick up. But the US unemployment rate is well above the 5-6% range associated with a normal economy.
Most of the improvement in the job market has occurred because layoffs have fallen. Hiring, by contrast, remains modest. Fewer layoffs can boost net job growth even when businesses are not filling many job openings.
Nearly 4.4 million Americans received unemployment benefits in the week that ended August 17, the latest period for which figures are available. That is about 70,000 fewer than the previous week and compares to a year ago, when 5.5 million Americans were receiving benefits.
Many of the jobs created in recent months have been lower-paying, part-time positions in industries such as hotels, restaurants and retail. Higher-paying industries such as manufacturing and construction have mostly shed jobs since the spring months.
But some signs indicate that hiring in both industries could pick up. A private survey released earlier this week showed that factory activity grew last month at the fastest pace in more than two years. And manufacturers added jobs, though at a slower pace than in the previous month.
Spending on US construction projects, meanwhile, rose to its highest level in more than four years in July. It was spurred by strength in both housing and commercial building.
The US economy expanded at a 2.5% annualised rate in the three months from April to June, a modest pace but much faster than the 1.1% rate in the first three months of the year. Home construction and business investment spending were two key drivers of growth.
Many economists think growth is slowing to about a 2% annualised rate in the current July to September quarter.