Fewer people sought unemployment benefits last week, an encouraging sign the job market may be slowly improving.
Weekly applications dropped 22,000 to a seasonally adjusted 405,000, the Labor Department said, the lowest level in almost three months.
The government said the total was increased by 11,500 state workers from Minnesota, who have filed applications because of that state's government shutdown.
Even with last week's decline, applications have now topped 400,000 for 14 weeks, evidence that the job market has weakened since earlier this year.
Applications had fallen in February to 375,000, a level that signals healthy job growth. They stayed below 400,000 for two months, then surged to an eight-month high of 478,000 in April and have declined slowly since then.
The economy has faltered this year as consumers cut back on spending in the face of higher gas prices. Manufacturing output also declined after Japan's March 11 earthquake disrupted global supply chains, particularly in the auto industry.
Employers responded by cutting back sharply on hiring. The economy added only 18,000 net jobs in June, the second straight month of dismal hiring. The unemployment rate rose to 9.2 percent, the highest this year. That's far below the average job gains of 215,000 per month in the February-April period.
Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that as temporary factors such as high gas prices fade, the economy should grow at a faster pace in the second half of this year. But if not, he said the central bank is prepared to do more to stimulate growth.
One option for the Fed would be to resume purchasing Treasury bonds in an effort to keep interest rates low and spur more borrowing and spending. It completed a $600 billion bond purchase program last month.
Other options include communicating in more explicit terms how long it plans to keep rates at record-low levels. That would increase investor confidence in the Fed's efforts to keep supporting the economy.
But Bernanke also acknowledged that factors such as high unemployment, a weak housing market and tight credit could continue to weigh on the economy.
"The possibility remains that the recent economic weakness may prove more persistent than expected," he said.
The economy expanded only 1.9 percent in the January-March period, and most economists believe it grew at a similarly weak pace in the April-June period.
Many economists expect growth to rebound to a 3 percent pace in the second half of the year. But growth must be stronger than that to significantly lower the unemployment rate.
The economy would need to grow 5 percent for a whole year to bring down the unemployment rate by one percentage point. Economic growth of just 3 percent a year would hold the unemployment steady and keep up with population growth.
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