Still, the number of people claiming benefits for more than a week rose by 59,000 to more than 6.8 million, the highest on records dating to 1967. The department also revised last week's data on continuing claims, replacing what had been a drop of 15,000 with an increase of 6,000.
That means continuing claims have set records for 19 straight weeks. The data lag initial claims by a week.
Retail sales rose for the first time in three months in May, as a rebound in demand at auto dealerships and gas stations helped offset weakness at department stores. The Commerce Department said retail sales increased by 0.5 percent last month, in line with economists' expectations. It was the largest increase since sales rose 1.7 percent in January following six straight declines.
Excluding autos, retail sales also grew 0.5 percent in May, better than the 0.2 percent gain that economists had expected.
Wall Street welcomed the drop in new jobless claims and growth in retail sales. The Dow Jones industrial average added about 55 points in afternoon trading, and broader indices also rose.
Consumers may be spending a bit more and layoffs may be slowing, but companies are reluctant to hire amid the longest recession since World War II. That makes it harder for the unemployed to find work.
Jobless claims are a measure of the pace of layoffs and are seen as a timely, if volatile, indicator of the economy's health.
The four-week average of claims, which smooths out fluctuations, fell to 621,750, down from a high of about 658,000 in early April. Many economists see the decline as a sign that layoffs have peaked and the recession is bottoming out.
Still, the levels are far above what is customary in a healthy economy. Initial claims stood at 388,000 a year ago.
The department said last week that companies eliminated a net total of 345,000 jobs in May. While steep, that's about half the monthly average of jobs lost in the first quarter.
Yet the unemployment rate jumped to 9.4 percent in May, a 25-year high, as hundreds of thousands of people entered the labor market and began looking for work but couldn't find it, the department said.
As college graduates and other new entrants start searching for a dwindling number of jobs, economists expect the unemployment rate to rise even as layoffs subside.
Some economists project the rate could near 11 percent by the middle of next year. And many families are saving more as they deal with layoff fears, as well as shrunken home equity and retirement accounts.
Because rising gasoline prices aided last month's retail sales gain, "a meaningful consumer recovery remains some way off," Paul Dales, U.S. economist at Capital Economics in Toronto, wrote in a research note. "It usually takes a few months for households to curtail their discretionary spending in response to the higher cost of gas."
On the housing front, foreclosure filings fell 6 percent in May from April, RealtyTrac Inc. said Thursday. More than 321,000 households received at least one foreclosure-related notice last month - 18 percent more than a year earlier - but the smallest annual gain since June 2006.
Despite the drop from April, it was the third-highest monthly rate since the Irvine, Calif.-based foreclosure listing firm began its report in January 2005. And as layoffs, rather than risky mortgages, become the main reason that borrowers default on their home loans, foreclosures likely will remain elevated this year and into 2010.
Also Thursday, the Commerce Department said businesses cut inventories 1.1 percent in April as they struggle to get stockpiles more in line with falling sales. Inventories have fallen for eight straight months, the longest stretch since there were 15 consecutive declines in 2001-2002, a period that covered the last recession.
Troubles in the automotive sector could cause unexpected fluctuations in jobless claims. General Motors Corp. filed for bankruptcy protection June 1, joining Chrysler LLC, which filed April 30.
GM said it will close about a dozen plants as part of its restructuring. The closings, which will take place through the end of 2010, will cost up to 20,000 workers their jobs.
In addition, the company said Monday that it plans to cut a production shift at a plant in Wentzville, Mo., in August, resulting in up to 900 layoffs.
Among the states, Connecticut had the largest increase in claims of 816, followed by Louisiana, Tennessee, Arizona and Nebraska. The state data lag initial claims by a week.
Florida had the largest drop in claims of 6,655, which it attributed to fewer layoffs in the construction, service and manufacturing industries. The next largest decreases were in Illinois, Michigan, California, and Texas.
-----
AP Economics Writer Martin Crutsinger contributed to this report.
Morey money-related links:
Get Action News on your website
