The Labor Department reported that claims for unemployment benefits fell by 33,000 last week to 342,000. Economists had been expecting that claims would rise by 3,000. The four-week moving average for claims fell by 7,250 to 369,500.

Even with the improvements, analysts said the weak economy is still putting greater pressures on the labor market. The unemployment rate climbed to 5.1 percent in March as businesses laid off the largest number of workers in five years.

Economic growth slowed to a near-standstill at the end of last year as the economy was battered by the prolonged slump in housing and a severe credit crunch that has resulted in billions of dollars of losses at many of the nation's largest financial institutions and has made it harder for consumers and businesses to get loans.

Consumer sentiment has plunged to recessionary lows as Americans have also watched gasoline soar to an average price above $3.50 per gallon nationally.

The 0.3 percent drop in orders for durable goods, items expected to last at least three years, followed even bigger declines of 0.9 percent in February and 4.4 percent in January.

Orders for all transportation products fell by 4.6 percent, reflecting the big drop in demand for autos. Orders for commercial aircraft actually rose by 5.5 percent while demand for defense aircraft surged by 29.4 percent. Many defense industries have seen big increases reflecting the wars in Iraq and Afghanistan.

A key category that is viewed as a proxy for business investment plans showed no increase in March after a big 2 percent drop in February. Businesses have cut back on their plans to expand and modernize as the economy has softened.