By Lucia Mutikani
WASHINGTON (Reuters) - The number of Americans filing new applications for unemployment benefits last week dropped to its lowest level in more than 41-1/2 years, suggesting the labor market maintained a sturdy pace of job growth in July.
Other data on Thursday also offered an upbeat assessment of the economy. A gauge of future economic activity increased solidly in June and another measure suggested growth picked up slightly last month.
The bullish jobs picture, together with a firming housing market brings the Federal Reserve a step closer to hike interest rates this year.
"This should reassure policymakers that their objective of maximum employment is coming closer into view," said John Ryding, chief economist at RDQ Economics in New York.Initial claims for state unemployment benefits fell 26,000 to a seasonally adjusted 255,000 for the week ended July 18, the lowest level since November 1973, the Labor Department said.
However, last week's drop likely exaggerates the strength of the labor market as claims are volatile during summer when automakers usually shut assembly plants for annual retooling.
Some firms keep production lines running, which can throw off a model the government uses to smooth the data for seasonal variations. A Labor Department analyst, however, said there were no special factors influencing the data.
Still, the decline unwound the increase in claims in June.
The dollar was trading weaker against a basket of currencies and prices for U.S. Treasuries fell marginally.
Technology shares on Wall Street rebounded from the prior sessions' losses, while the rest of the market was little changed after weak earnings from Caterpillar (N:CAT), the world's largest construction and mining equipment maker, and diversified technology firm 3M (N:MMM).
Fed officials meet next week, but they are not expected to tighten monetary policy before September. The Fed has kept its short-term lending rate near zero since December 2008.
FIRMING TREND
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.
"We believe that retooling shutdowns were likely much smaller in 2015 than in previous years due to lower auto inventories and very strong vehicle sales," said Cheng Chen, an economist at TD Securities in New York.
As such, that would suggest an acceleration in motor vehicle assembly this month, which would support the struggling manufacturing sector and lift industrial production.
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.
In a separate report, the Conference Board said its Leading Economic Index rose 0.6 percent last month after advancing 0.8 percent in May. The increase reflected the strengthening housing market, which has been characterized by a surge in housing starts and building permits, as well as very strong sales.
The upbeat growth picture was also supported by another report from the Chicago Fed, which showed its National Activity Index rising to +0.08 in June after five straight months of negative readings. The gain was led by improvements in production and employment related indicators.
