The sturdy jobs picture together with a strengthening housing market brings the Federal Reserve a step closer to raising interest rates this year.
Initial claims for state unemployment benefits declined 26,000 to a seasonally adjusted 255,000 for the week ended July 18, the lowest level since November 1973, the Labor Department said on Thursday. Claims for the prior week were unrevised.
Some firms keep production lines running, which throws off a model the government uses to smooth the data for seasonal variations. A Labor Department analyst said there were no special factors influencing the data.
Still, the decline unwound the increase in claims in June.
The dollar pared losses against a basket of currencies, while prices for U.S. government debt fell. Most economists expect the U.S. central bank will hike interest rates in September. The Fed has kept its short-term lending rate near zero since December 2008.
The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 4,000 to 278,500 last week.
The claims data covered the survey week for the nonfarm payrolls portion of July's employment report.
Though the four-week average of claims increased 1,500 between the June and July survey periods, payroll growth likely remained above the 200,000 threshold this month.
The four-week moving average of claims has been below the key 300,000 mark, which is normally associated with sturdy job gains, for 17 straight weeks - an unusually long stretch.
Payrolls increased 223,000 in June after rising 254,000 in May. Job growth has exceeded 200,000 in 14 of the last 16 months and at 5.3 percent, the unemployment rate is close to the 5.0 percent to 5.2 percent range that most Fed officials consider consistent with full employment.
Thursday's claims report showed the number of people still receiving benefits after an initial week of aid fell 9,000 to 2.21 million in the week ended July 11.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)