The economy's brightening outlook was dimmed somewhat by another report on Thursday showing a tumble in housing starts and building permits last month.
"This part of economy is going in the wrong direction while the rest of the economy is picking up," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.
Initial claims for state unemployment benefits dropped 3,000 to a seasonally adjusted 302,000 for the week ended July 12, the Labor Department said. Economists had forecast first-time applications for jobless aid rising to 310,000.
The four-weak average of claims, considered a better gauge of labor market trends as it irons out week-to-week volatility, hit its lowest level in seven years.
Prices for U.S. Treasury debt extended gains after the data, while U.S. stock index futures held losses.
The claims data covered the survey week for July nonfarm payrolls. Claims fell 12,000 between the June and July survey period, suggesting another month of solid job gains after June's hefty 288,000 increase.
Employment has grown by more than 200,000 jobs in each of the last five months, a stretch not seen since the late 1990s.
Federal Reserve Chair Janet Yellen cautioned on Tuesday the Fed could raise interest rates sooner and more rapidly than currently envisioned if the labor market continued to improve faster than anticipated by policymakers.
Economists currently do not expect the U.S. central bank to start raising interest rates before the second half of 2015. The Fed, which is wrapping up its monthly bond buying program, has kept overnight lending rates near zero since December 2008.
The claims report showed the number of people still receiving benefits after an initial week of aid was the lowest in seven years in the week ended July 5. The unemployment rate for people receiving jobless benefits fell one-tenth of a percentage point to 1.9 percent during the same period.
While the broader economy has rebounded from the first-quarter slump, housing is struggling to get back on track since stalling in late 2013 in the wake of a rise in mortgage rates.
Groundbreaking declined 9.3 percent to a seasonally adjusted annual 893,000 million unit-pace, the lowest since September, the Commerce Department said in a separate report. That was the second straight month of declines and confounded economists' expectations for a rise to a 1.02 million-unit rate.
Apart from high borrowing costs, housing has been constrained by a shortage of properties for sale, which is keeping house prices elevated and pricing first-time buyers out of the market.
But there are glimmers of hope for the sector. A survey on Wednesday showed confidence among single-family home builders hit a six-month high in July, amid optimism over sales over the next six months.
Groundbreaking for single-family homes, the largest part of the market, tumbled 9.0 percent in June to a 575,000-unit pace, the lowest since November 2012. Single-family starts in the South hit a two-year low.
Starts for the volatile multi-family homes segment dropped 9.9 percent to a 318,000-unit rate.
Permits fell 4.2 percent to a 963,000-unit pace in June. Economists had expected them to rise to a 1.04-million unit pace. With permits now leading starts, groundbreaking could pick up in the months ahead.
Permits for single-family homes increased 2.6 percent to a 631,000 unit-pace, the highest level since November. Permits for multi-family housing tumbled 14.9 percent to a 332,000-unit pace.