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CHRISTOPHER S. RUGABER

AP Economics Writer

WASHINGTON — The outlook for the job market is looking brighter.

Far fewer people are seeking unemployment benefits than just three months ago — a sign that layoffs are falling sharply.

The number of people applying for benefits fell last week to 366,000, the fewest since May 2008. If the number stayed that low consistently, it would likely signal that hiring is strong enough to lower unemployment.

The unemployment rate is now 8.6 percent. The last time applications were this low, the rate was 5.4 percent.

The big question is whether fewer layoffs will translate into robust hiring. It hasn’t happened yet, even though job growth has increased in recent months.

The four-week average of weekly unemployment applications, which smooths out fluctuations, dropped last week to 387,750. That’s the lowest four-week since July 2008. The four-week average has declined in 10 of the past 12 weeks.

“Labor market conditions have taken a turn for the better in recent weeks,” Michael Gapen, an economist at Barclays Capital, said in a note to clients. “Payroll growth should improve in the coming months.”

Separately, the prices companies pay for factory and farm goods rose 0.3 percent last month. The figure was pushed up by higher food and pharmaceutical prices. But energy prices barely rose, keeping inflation in check.

In the 12 months ending in November, wholesale prices have increased 5.7 percent, the Labor Department said Thursday. It’s the smallest year-over-year increase since March.

The department’s producer price index measures price changes before they reach consumers.

A mixed picture of manufacturing emerged from other reports Thursday. Factory output fell in November for the first time in seven months, according to the Federal Reserve. Manufacturers made fewer cars, electronics and appliances.

But some economists noted that auto sales rose in November, suggesting that production will rebound.

And the Federal Reserve Banks of Philadelphia and New York said manufacturing expanded in their regions. Manufacturing has been a key source of growth this year.

Still, the U.S. manufacturing sector could weaken in 2012. Growth is slowing in Asia. Europe is likely already in recession. And U.S. companies are reducing their investment in machinery and other large equipment.

The downward trend in applications suggests that companies are cutting fewer workers as the economy picks up. It also comes as Congress is wrangling over whether to extend emergency unemployment benefits, which are set to expire at the end of this year.

Growth may top 3 percent in the final three months of this year, according to many economists. That would be up from 2 percent in the July-September quarter.

Other recent reports suggest the job market is improving a bit. In the past three months, net job gains have averaged 143,000 a month. That compares with an average of 84,000 in the previous three months.

In November, employers added 120,000 jobs, and the unemployment rate fell to 8.6 percent from 9 percent. That was the lowest unemployment rate in 2½ years. But about half that decline occurred because many of the unemployed gave up looking for work. When people stop looking for a job, they’re no longer counted as unemployed.

Employers posted fewer jobs in October than in the previous month, the government said Tuesday, though the decline was modest.

Job openings have risen by about 35 percent since the recession officially ended in June 2009. But they’re still about 25 percent below pre-recession levels.

More than 7.4 million people are receiving unemployment benefits, according to Thursday’s report. About 2 million will lose their benefits by mid-February if the emergency program expires.

Lawmakers differ over how long benefits should last. The House passed a Republican bill Tuesday that would renew emergency aid but reduce the maximum duration to 59 weeks from the current 99 weeks.

Democrats want to keep the full 99 weeks. The measure is part of broader legislation in the Democratic-led Senate that would also extend a Social Security tax cut.

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