WASHINGTON (Reuters) - New applications for U.S. jobless benefits unexpectedly fell last week and the number of Americans on unemployment rolls tumbled to a 28-1/2-year low, pointing to rapidly shrinking labor market slack.
The economy's brightening prospects were further boosted by other data on Thursday showing a sharp acceleration in factory activity in the mid-Atlantic region this month.
While the raft of upbeat economic data support an interest rate hike next month, the Federal Reserve's decision will also hinge on the state of financial markets, which have been rattled in recent days by Trump administration scandals.
Initial claims for state unemployment benefits decreased 4,000 to a seasonally adjusted 232,000 for the week ended May 13, the Labor Department said. That pushed claims close to levels last seen in 1973.
Claims have now decreased for three consecutive weeks. Economists polled by Reuters had forecast first-time applications for jobless benefits rising to 240,000.
Claims have now been below 300,000, a threshold associated with a healthy labor market, for 115 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is close to full employment, with the unemployment rate at a 10-year low of 4.4 percent.
The number of people still receiving benefits after an initial week of aid dropped 22,000 to 1.90 million in the week ended May 6, the lowest level since November 1988.
Last week's claims data covered the survey week for May's nonfarm payrolls. Claims fell 11,000 between the April and May survey periods suggesting further job gains this month. The economy created 211,000 jobs in April after adding only 79,000 positions in March.
RATE HIKE ODDS FALL
Labor market strength and tightening could allow the Fed to raise rates at its June 13-14 policy meeting. The U.S. central bank raised rates in March and has signaled two more rate hikes in 2017.
Data such as retail sales and industrial production, which suggested economic growth picked up early in the second quarter after rising at an anemic 0.7 percent annualized rate in the first quarter, also have supported expectations of a rate hike.
But a stock market sell-off amid uncertainty over President Donald Trump's political future could jeopardize further monetary policy tightening.
Financial markets are pricing in a 60 percent chance of a 25-basis-point hike at the Fed's June meeting, down from 78.5 percent on Tuesday, according to CME Group's FedWatch program.
The U.S. dollar rose against a basket of currencies after the data while U.S. short-term interest rates futures turned lower. U.S. stock index futures were mostly weaker. Prices of U.S. Treasuries were trading lower.
In a separate report the Philadelphia Fed said its index for current manufacturing activity in the mid-Atlantic region jumped to a reading of 38.8 this month from 22.0 in April. The index recovered some of the declines of the previous two months.
The current new orders and shipments indexes remained at high readings, the survey showed. Both the delivery times and unfilled orders indexes were positive for the seventh straight month, suggesting longer delivery times and increases in unfilled orders.
Firms reported an increase in manufacturing employment this month, though the current employment index fell three points.
(Reporting by Lucia Mutikani; Editing by Paul Simao)