The drop in applications is the latest sign that the economy is improving, and economists expect Friday's employment report for December to show a solid gain in jobs.
"The economy is gaining momentum, and the job market, which has been the recovery's caboose, is starting to catch up," said Zach Pandl, an economist at Nomura Securities.
Applications for unemployment benefits actually rose last week to a seasonally adjusted 409,000, the Labor Department said Thursday. Still, that's not much higher than the 391,000 level reached in the previous week -- the lowest in more than two years -- and week to week figures tend to fluctuate more during the holidays.
A more reliable measure is the four-week average for applications. That fell last week to 410,750, the lowest level in nearly two and a half years and the eighth decline in nine weeks.
Fewer than 425,000 people applying for benefits signals modest job growth. And applications are far below their peak during the recession of 651,000, reached in March 2009. Still, economists say applications need to fall consistently to 375,000 or below to substantially bring down the unemployment rate.
The declines won't matter much to most Americans until they are accompanied by significant job gains and a drop in the 9.8 percent jobless rate.
Economists expect the government to report Friday that employers added a net total of 145,000 jobs and the unemployment rate fell to 9.7 percent last month. Some are raising their forecasts after payroll services provider ADP said Wednesday that private employers added a net total of 297,000 new jobs last month. That's the most in the 10 years that ADP has tracked the data.
ADP's figures have usually differed from the government's -- sometimes by a wide margin -- and many economists cautioned against reading too much into the numbers. But some say it's a sign that today's government report will show major gains.