Another drop in the number of Americans seeking unemployment benefits for the first time supported growing hopes yesterday that the US economic recovery was gathering pace, and that the soft labour market, an obstacle to recovery hopes, was finally starting to improve.

Other US government data also revealed improving industrial production and a slight rise in prices for consumer goods.

Initial jobless claims fell for a second week, dropping by 4,000 to 384,000 in the week to October 10th, the US Labour Department said. It was the lowest number in eight months and the second week the total has held below 400,000. Economists consider a number above that level a sign of a contracting jobs market.

The four-week moving average, a steadier reading of the volatile jobless series, also fell to 390,750 - its lowest point since early February.

The softness of the jobs markets has proved a problem for those forecasting a strong US economic recovery. But the monthly payroll numbers for September, published earlier this month, showed a rise for the first time in seven months.

But economists remained only cautiously optimistic. "The numbers are a step in the right direction, but they are still far from the type of growth we need to achieve for a full recovery," said Mr Stephen Gallagher, chief US economist at Société Générale.

A report published yesterday by the Business Roundtable, a group of US chief executives, upheld the steadier picture of employment. More than half the executives polled for the survey said employment levels would remain steady in the fourth quarter, with a further 12 per cent expecting an increase in hiring.

Mr Philip Condit, chairman and chief executive of Boeing, who presented the Roundtable report, said there had been a gradual but steady improvement in business conditions since the war in Iraq.

Meanwhile, new data from the Federal Reserve yesterday showed industrial production rose by 0.4 per cent last month and by an annual rate of 3.3 per cent in the third quarter. A strong increase in manufacturing output, up 0.7 per cent in September, led the rise.

Another report showed consumer prices up 0.3 per cent on the month but, stripping out the volatile food and energy sectors, inflation rose 0.1 of a percentage point.