WASHINGTON (AP) – The number of American workers signing up for jobless benefits plunged last week to the lowest level in five months, a fresh dose of good news for the economy’s revival.

For the work week ending July 19, new applications for unemployment insurance dropped by a seasonally adjusted 29,000 to 386,000, the Labor Department reported Thursday. It marked the second week in a row that claims went down and represented the first time since the week ending Feb. 8 that claims dipped below 400,000, a level associated with a weak job market.

The claims figures were better than economists were expecting; they were forecasting claims to rise slightly.

Although claims tend to swing widely in July, distorted by temporary plant closings, other figures in the report also suggested that the pace of layoffs is stabilizing.

The more stable, four-week moving average of jobless claims, which smoothes out weekly fluctuations, fell by a solid 5,500 last week to 419,250, the lowest level since the work week ending March 8.

And the number of unemployed Americans collecting jobless benefits for more than a week declined by 24,000 to a three-month low of 3.6 million for the work week ending July 12, the most recent period for which that information is available.

While the most recent snapshot of the labor market was encouraging, economists say that even if companies slow the speed at which they lay off workers, they probably won’t be in a mood to go on a hiring spree.

Companies – wanting profits to improve – are still reluctant to make big capital spending investments and increase their work forces, the biggest factors restraining the economy’s ability to get back to full throttle.

To give the economic recovery a push forward, the Federal Reserve cut a key interest rates on June 25 by one-quarter percentage point to 1 percent, a 45-year low. Economists believe the Fed will hold rates at that low level when it meets next on Aug. 12.

Federal Reserve Chairman Alan Greenspan and private economists are hopeful the economic growth, which has been limping along, will pick up the pace in the second half of this year.

President Bush’s fresh round of tax cuts should help out of that front, economists say.

Three members of Bush’s economic team will participate in a two-day bus tour in Wisconsin and Minnesota next week to promote the president’s policies.

Even if the economy picks up momentum in the second half of this year, the nation’s jobless rate, now at a nine-year high of 6.4 percent, could hover in that range or creep higher in coming months, economists say. Job growth probably won’t be strong enough to accommodate all the additional job seekers who would enter the market, attracted by an improved climate.

Consumers are the main force keeping the economy going.

Throughout the economic slump, low mortgage rates, a refinancing frenzy and solid appreciation in home values over the past few years have spurred consumer spending, helping to offset the potentially negative force of a stagnant job market.

However, in recent weeks, mortgage rates have climbed, slowing refinancing activity a bit. A steady upward swing in mortgage rates could dampen – but not derail – the recovery, say economists who are keeping a close eye on the matter.

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