The four-week average dropped for the seventh straight week to 402,500. Still, applications typically must fall below 375,000 to signal healthy job growth. The last time they were that low was in late February.

The job market "may be improving, but the rate of improvement is very sluggish," Steven Wood, an economist at Insight Economics, said in a note to clients.

Two weeks ago, applications dropped to 399,000. That was the first time they had fallen below 400,000 since early April.

Separately, the Labor Department said consumers paid more for gas, food and clothes last month, pushing prices up by the most since the spring.

The Consumer Price Index rose 0.5 percent in July, following a drop of 0.2 percent in June. Gas prices accounted for much of the swing. The core index, which excludes volatile food and energy, rose 0.2 percent.

The report on weekly unemployment applications does provide some positive signs for hiring in August. Applications are lower than they were in mid-July, when they totaled 422,000.

Thursday's report covers the week in which the Labor Department asks companies about their payrolls for its August report on hiring. The drop from last month suggests slightly more jobs were added this month.

Employers added 117,000 net jobs in July, roughly double the totals from each of the previous two months. The unemployment rate ticked down to 9.1 percent.

Other recent data show the economy gradually improved in July, after growing at annual rate of just 0.8 percent in the first six months of the year.

Consumers spent more on retail goods in July than in any month since March. And factory output rose in July by the most since the Japan crisis, a sign that supply chain disruptions caused by the March 11 earthquake could be fading.

Still, July's job gains are barely enough to keep up with population growth. At least double that many new jobs are needed to significantly reduce unemployment. And a consumer sentiment survey taken earlier this month showed confidence in the economy fell to the lowest level in 31 years, raising concerns that Americans could pull back on spending.

Worries about U.S. economic weakness and the ongoing European debt crisis caused the stock markets to plunge in recent weeks. While stock indexes have recovered some lost ground, the Dow Jones industrial average is more than 1,200 points lower than it was on July 22.

In an effort to boost growth, the Federal Reserve last week said it will keep its benchmark short-term interest rate at nearly zero until mid-2013. Previously, the central bank had never given a clear time frame. It hopes the certainty of low rates will encourage consumers and businesses to borrow and spend more.

The Fed's assessment of the economy last week was gloomier than it had been in June. The Fed said it "anticipates that the unemployment rate will decline only gradually."

The number of people receiving unemployment benefits rose 7,000 to 3.7 million. But that doesn't include more than 3.5 million people who receive extended benefits under emergency programs enacted by Congress. All told, 7.3 million people received benefits in the week ending July 30, the latest data available.