The number of Americans filing for unemployment benefits fell last week, pointing to a tightening labor market that likely keeps the Federal Reserve on course to announce plans next month to start reducing its massive bond portfolio.
Labor market strength was also underscored by another report on Thursday showing U.S.-based employers in July announced the fewest job cuts in eight months.
"The labor market remains tight as a drum even if it is not throwing off the sparks of higher wages and more inflation," said Chris Rupkey, chief economist at MUFG in New York. "The Fed can continue mopping up the stimulus provided to fight the financial crisis and recession."
Initial claims for state unemployment benefits decreased 5,000 to a seasonally adjusted 240,000 for the week ended July 29, the Labor Department said. Economists had forecast claims falling to 242,000.
Claims have now been below 300,000, a threshold associated with a healthy labor market, for 126 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is near full employment, with the jobless rate at 4.4 percent.
Economists believe that labor market tightness will encourage the Fed to announce a plan to start offloading its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities in September.
The U.S. central bank is, however, expected to delay raising interest rates until December because of low inflation. The Fed has raised rates twice this year.