WASHINGTON (Reuters) - The number of Americans claiming jobless benefits fell last week and factory employment in the U.S. Midwest hit a 27-year high in March, more signs that an improvement in the labor market is under way.
Initial claims for state unemployment benefits slipped 6,000 to a seasonally adjusted 388,000 the Labor Department said on Thursday, a day before the government releases the more closely watched U.S. payrolls data.
Separately, the Institute for Supply Management-Chicago's employment index hit the highest level since December 1983, jumping to 65.6 in March from just under 60 the month before.
Its overall business barometer dipped to 70.6 from 71.2 in February but remained in expansion mode.
The government revised the claims series back to 2006 to account for new seasonal factors and showed slightly higher claims for recent prior weeks than previously estimated.
Still, the downward shift remained intact and economists said the revisions did not change their views that the labor market was firming.
"The trend is still clearly downwards. There is every reason to expect that to continue as the return of bank credit to small businesses allows them to hold onto people who might otherwise have been laid off," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.
"The drop in claims has already been reflected in a clear acceleration in private payrolls in recent months, and we think there is more to come."
The claims data falls outside the survey period for the government's closely watched employment report for March, which is scheduled for release on Friday.
Nonfarm payrolls are expected to have increased a solid 190,000 after rising 192,000 in February, according to a Reuters survey, with the unemployment rate seen holding steady at a near two-year low of 8.9 percent.
Data on Wednesday showed private employers added 201,000 jobs in March, welcomed by economists as a sign of momentum in the labor market.
LABOR MARKET FIRMING
The labor market is strengthening even though economic growth slowed early in the year, held back by bad weather and rising energy prices, after a brisk fourth quarter.
That moderation in the growth pace was confirmed by the pull back in Midwest manufacturing activity this month and a dip in orders received by U.S. factories in February. A report from the Commerce Department showed new orders for manufactured goods fell 0.1 percent after rising 3.3 percent in January.
Stocks on Wall Street opened flat, while government debt prices rose. The U.S. dollar fell broadly.
Economists had forecast claims would fall to 380,000. The four-week moving average of unemployment claims -- a better measure of underlying trends - rose 3,250 to 394,250.
Claims have held below the 400,000 level associated with steady job growth for three weeks in a row, with the four-week average below that mark for the fifth straight week.
"The continued downward trend in claims gives us confidence that the labor market is on the cusp of accelerating," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank in New York.
The number of people still receiving benefits under regular state programs after an initial week of aid dropped 51,000 to 3.71 million in the week ended March 19, the lowest level since October 2008.
Economists had expected so-called continuing claims to fall to 3.70 million. The number of people on emergency unemployment benefits dropped 38,838 to 3.59 million in the week ended March 12, the latest week for which data is available.
A total of 8.77 million people were claiming unemployment benefits during that period under all programs.