Weekly unemployment benefit applications fell 37,000 to a seasonally adjusted 335,000, the Labor Department said Thursday. That's the lowest level since January 2008, just after the recession began.
The four-week average, a less volatile measure, fell to 359,250.
The applications data can be uneven in January. Job cuts typically spike in the second week of the month as retailers, restaurants and other companies lay off temporary workers hired for the winter holidays.
Last week, the layoffs weren't as large as expected, a department spokesman said. That caused a steep drop in the seasonally adjusted data.
Overall, applications remain at a level that suggests employers are hiring at a slow but steady pace. Applications fluctuated between 360,000 and 390,000 for most of last year. At the same time, employers added an average of 153,000 jobs a month.
That's just been enough to slowly push down the unemployment rate, which fell 0.7 percentage points last year to 7.8 percent.
Employers added 155,000 jobs last month, nearly matching the average for the year. December's steady job gain suggests employers didn't cut back on hiring in the midst of the debate over the tax and spending changes known as the fiscal cliff. Many economists feared that the prospect of higher taxes and steep cuts in federal spending would cause a slowdown in job gains.
That's a good sign, since more budget showdowns are expected. Congress must vote to raise the government's $16.4 trillion borrowing limit by sometime between mid-February and early March. If not, the government risks defaulting on its debt. Republicans will likely demand deep spending cuts as the price of raising the debt limit.
The overall economy grew at an annual rate of 3.1 percent in the July-September quarter. But economists believe activity slowed considerably in the October-December quarter to a rate below 2 percent or less, in part because companies cut back on restocking.