The number of Americans filing for unemployment benefits fell last week to near a 43-year low, suggesting labor market resilience even though hiring slowed sharply in May.
The drop in jobless claims could give Federal Reserve officials more confidence that job growth will pick up.
Fed Chair Janet Yellen told lawmakers on Tuesday that the U.S. central bank believed the slowdown in nonfarm payroll gains was "transitory," noting that "several other timely indicators of labor market conditions still look favorable."
"Overall labor market conditions are not as bad as one might assume based on May's nonfarm payroll print alone," said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.
Initial claims for state unemployment benefits declined 18,000 to a seasonally adjusted 259,000 for the week ended June 18, the Labor Department said on Thursday.
The drop was the largest since February and left claims not too far from a 43-year low touched in March. Economists polled by Reuters had forecast initial claims falling only to 270,000 in the latest week.
Claims have now been below 300,000, a threshold associated with a strong job market, for 68 straight weeks, the longest streak since 1973.
The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 2,250 to 267,000 last week.
U.S. financial market were little moved by the report as investors anxiously awaited the results of Britain's referendum on European Union membership late on Thursday.
The claims report covered the survey period for June nonfarm payrolls. The four-week average of claims declined 8,750 between the May and June survey periods, suggesting an improvement in job growth after payrolls increased only 38,000 in May - the smallest increase since September 2010.
NEW HOME SALES FALL
Labor market optimism is being spurred by near record high job openings, as well as the very low layoffs.
In a separate report, the Commerce Department said single-family home sales fell 6.0 percent to a seasonally adjusted annual rate of 551,000 units last month from a more than eight-year high in April amid weakness in three regions.
New home sales were up 8.7 percent from a year ago and the overall housing market is gaining steam, with a report on Wednesday showing home resales rose in May to a more than nine-year high. New home sales are likely to benefit from a chronic shortage of previously owned houses available for sale.
The housing market is being underpinned by a tightening labor market, which is starting to lift wages, a well as still very low mortgage rates.
Last month, the inventory of new homes on the market rose 1.2 percent to 244,000, the highest since September 2009. At May's sales pace it would take 5.3 months to clear the supply of houses on the market, up from 4.9 months in April.
New single-family homes sales slipped 0.9 percent in the populous South and tumbled 33.3 percent in the Northeast. Sales in the West dropped 15.6 percent. The West has seen a sharp increase in home prices amid tight inventories. Single-family homes sales surged 12.9 percent in the Midwest.