The better labor market tone was also captured by a survey Thursday showing an acceleration in manufacturing activity in the Mid-Atlantic region, accompanied by a rise in factory jobs.
Even as the economy gathers steam there is little sign of a broad pick-up in prices, keeping inflation pressures muted.
"The outlook for 2014 remains good. The economy is not generating much inflation at the moment, but this is no reason to doubt its vitality," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 326,000, the Labor Department said. That compared to economists' expectations for a fall to 328,000.
Job growth slowed sharply in December, with employers adding only 74,000 new jobs to their payrolls. Nonfarm payrolls had increased 241,000 in November and the retreat last month was blamed on cold weather.
In a separate report,
A gauge of factory employment surged this month, but workers had fewer hours on average. There also was a slowdown in new orders.
Despite the improving growth picture, inflation remains largely dormant.
In anther report, the Labor Department said its Consumer Price Index increased 0.3 percent after being flat in November. In the 12 months to December, consumer prices accelerated 1.5 percent after advancing 1.2 percent in November.
The increases were in line with economist expectations.
Low Interest Rate Bias
Stripping out the volatile energy and food components, the so-called core CPI rose only 0.1 percent, slowing from a 0.2 percent gain in November.
That left its increase over the past 12 months at 1.7 percent, where it has now been for four consecutive months.
The Fed targets 2 percent inflation, although it tracks a gauge that tends to run a bit below CPI.
The U.S. central bank has started reducing the pace of its monthly bond purchases, but persistently low inflation is expected to see it hold interest rates near zero for a long time even if the jobs market picks up significantly.
Slack in the jobs market, which has seen small gains in wages, is keeping the lid on inflation. Even as the economy accelerates, wage growth is expected to lag, meaning inflation is likely to only gradually increase this year.
"We continue to expect the Fed to remain biased towards a lower policy rate theme for even longer, though they will continue to pursue the current unwinding of bond purchases, which we expect to be completed late this year," said Millan Mulraine, deputy chief economist at TD Securities (TD) in New York.
A 3.1 percent increase in gas prices was mostly behind the spike in inflation last month. The increase in gasoline was the largest since June and followed a 1.6 percent fall in November. Food prices nudged up 0.1 percent, rising by the same margin for a third month.
Within the core CPI, apparel prices rose 0.9 percent, also the largest gain since June. Apparel prices had declined for three consecutive months.
There were increases in rents. While medical care costs rose 0.3 percent, prices for prescription drugs fell 0.9 percent. Tobacco prices rose, maintaining the trend seen in wholesale prices.
New motor vehicle prices were flat, while prices for used cars and trucks fell.