Jobless benefit applications fell below 400,000 for the first time in four months, the U.S. Labor Department reported.
According to Thursday's report, the number of Americans seeking unemployment benefits fell 7,000 to a seasonally adjusted 395,000.
The drop is a sign the job market is improving slowly after a recent slump.
"The trend in claims is going to be one of the most important things we watch over the next few weeks or so, to gauge whether we're entering another recession," Brett Ryan, U.S. economist with Deutsche Bank, told CNN Money.
Economists say that based on the four-week moving average, the unemployment rate appears to be trending downward.
"The economy is in a pretty precarious spot right now, and the probability of a recession has gone up just in the last few weeks," Ryan noted.
"However, if these high frequency data points can manage to hang in there, and businesses decide to wait it out and not lay off workers, then there's a good chance we can avoid another recession," he said.